NXP IPO to raise $476M, CEO discusses challenges and opportunities

While ranking as one of the largest IPOs in the United States so far this year, the offering comes in below expectations. NXP's CEO talks to EDN about the headwinds the company faced in launching the offering and the benefits of doing so against this economic backdrop.

By Suzanne Deffree, Managing editor, news -- EDN, August 6, 2010

NXP Semiconductors this morning announced an IPO (initial public offering) of approximately 14% of its stock priced at $14 a share.

Expected to raise $476 million, the IPO is one of the largest in the United States so far this year.  However, the offering came in below expectations. The company in April anticipated a $1.5 billion IPO and filed papers with the SEC earlier this week estimating the IPO would be priced between $18 and $21 a share, which would have raised approximately $620 million at the mid-point of $19.50.

"Financial investors remain quite concerned about the overall health of the semiconductor industry and that was one of the key factors that we had to face in the headwinds we had," NXP President and CEO Rick Clemmer told EDN in an interview today. "The IPO market continues to clearly be a buyer's market. So while it wasn't a reflection on our performance, it was a reflection on the perspective of the potential health of the semiconductor industry.

"In some ways we are disappointed because we would have liked to have had a higher price, but in other ways it's pretty sound because it gives us a good solid base for our new shareholders to participate and improve shareholder value going forward," he said.

Clemmer said NXP did not want to hold off on its IPO, despite the challenging economic backdrop.

"We could have chosen to pull the IPO, but we have about $250 to $300 million of additional cost savings that we will deliver through our Redesign Program [cost-reduction program] over the next five to six quarters," he said. "Being able to let our new shareholders  participate in the value creation associated with that cost reduction we felt was more valuable than waiting for a more normalized valuation from overall semiconductor multiples."

The IPO comes nearly four years after Koninklijke Philips Electronics NV (Philips) in September 2006 sold 80.1% of its semiconductors businesses for €3.451 billion to a consortium of private equity investors in a multi-step transaction, consisting of Kohlberg Kravis Roberts & Co (KKR), Bain Capital, Silver Lake Partners, Apax, and AlpInvest Partners NV. The moved formed NXP in one of the largest leveraged buyouts in semiconductor industry history.

NXP has reported a loss for each full year since the private equity consortium move. To help offset that, the company in 2008 launched its Redesign Program that had achieved approximately $650 million in annual savings as of March 31, as compared to Q3 2008. The program included changes in management, a greater focus on mixed-signal design, and a streamlining of manufacturing that will see the company reduce its number of front-end facilities from 14 at the time of its separation from Philips to six by the end of 2011.

NXP's net debt before the IPO was $4.2 billion and follows the company's actions in 2009 to reduce its debt by $1.3 billion through bonds transactions. Clemmer said proceeds from the IPO will be used to pay that debt down further.

Today's offering is made up of 34 million new NXP shares and leaves the existing 249,251,500 shares untouched, according to NXP's filing with the SEC (Securities and Exchange Commission). With the 14% stake offered, Philips holds a 17% stake in NXP and the private equity consortium maintains a 69% stake. The private equity consortium, as well as Philips, must wait six months after the IPO before offering any of their shares, if they choose to do so.

"Our private equity holders, I would assume, will be waiting until there's more of a significant return on their original investment," Clemmer said. "In our proxy, Philips talks about possibly transferring their ownership to some of their pension funds. They have the flexibility to do [that] where they will become much more significant long-term investors, as well."

NXP Semiconductors' management team today presided over the NASDAQ opening bell to celebrate the company's IPO. NXP's shares are trading on the NASDAQ under the symbol NXPI.