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NXP, Freescale merger seen to shake industry

Posted: 03 Mar 2015 ?? ?Print Version ?Bookmark and Share

Keywords:NXP? Freescale? merger? STMicroelectronics? NXP?

NXP and Freescale have revealed their plans for a merger, which many consider as one of the largest consolidations in the semiconductor industry to date. Upon approval, the companies would create a top 10 chipmaker and embedded processor giant with more than $10 billion in combined revenues.

The deal would make the two companies the world's ninth largest chip maker. It would leapfrog competitors STMicroelectronics and Renesas at $7 billion each and approach Texas Instruments at $12 billion, according to IC Insights.

The deal comes at a time of rapid consolidation as the semiconductor industry generally lumbers to single-digit growth rates. For its part, Freescale still carries significant debt but returned to profitability last year as it struggles toward a goal of 50 per cent gross margins.

In a smaller but similar deal announced in December, Cypress bid $4 billion to acquire Spansion. A year earlier, Avago bid $6.6 billion for LSI, then sold part of the company to Intel.

For their part, NXP and Freescale stuck a definitive agreement for a deal they valued at $40 billion. They claim the combination would make them the largest supplier of automotive chips and general-purpose MCUs.

Richard Clemmer, NXP's CEO and proposed CEO of the combined company, called the merged company "a leader in high performance mixed signal solutions...We fully expect to continue to significantly out-grow the overall market, drive world-class profitability and generate even more cash, which taken together will maximise value for both Freescale and NXP shareholders," noted Clemmer.

NXP said the deal would add to the company's non-GAAP earnings and non-GAAP free cash flow. NXP anticipates achieving cost savings of $200 million in the first full year after closing the transaction, eventually expanding to $500 million of annual cost savings.

The cost cuts are relatively small for a merger of this size, suggesting any planned layoffs could be relatively small. Presumably competing business units that support overlapping ARM-based MCUs would be among those targeted for cuts.

The companies scheduled a Monday morning conference call to describe the deal to analysts.

Under the terms of the agreement, Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the close of the transaction. The purchase price implies a total equity value for Freescale of about $11.8 billion based on NXP's closing stock price as of February 27, 2015, according to the press statement.

The transaction is expected to close in the second half of calendar 2015. NXP intends to fund the transaction with $1 billion of cash from its balance sheet, $1 billion of new debt and nearly 115 million NXP ordinary shares. Post transaction, Freescale shareholders will own roughly 32 per cent of the combined company.

The transaction has been unanimously approved by the boards of directors of both companies and is subject to regulatory approvals as well as the approval of NXP and Freescale shareholders.

- Rick Merritt
??EE Times





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