Freescale on Sales Block

By Jessica Davis -- Electronic News, 9/11/2006

Freescale Semiconductor Inc. is on the verge of being purchased for $16 billion in a leveraged buy out by several investment groups, according to a New York Times report, citing sources briefed on the negotiations.

In a brief statement issued this morning Freescale acknowledged that “it is in discussions with parties relating to a possible business transaction. There can be no assurances that any transaction will result from these discussions.”

The Austin, Texas-based semiconductor company declined further comment, citing the interests of its stockholders, employees and customers.

Freescale was founded in 2004, the result of a spin off of Motorola’s semiconductor division first announced in 2003. The company got its new name in February 2004, and an initial public offering (IPO) followed later in the year

The NYT report this morning said a deal was near last night and if completed would represent the largest LBO ever in the technology sector, surpassing SunGard Data Systems’ $11.3 billion last year.

The consortium that is in discussions with Freescale to acquire the company includes Texas Pacific Group, Blackstone Group, and Permira, according to the NYT sources, which added that the Carlyle Group and the and Bain Capital may also join the group.

However, those sources warned that talks still may collapse or that another party could emerge with a higher bid. The NYT report said that Kohlberg Kravis Roberts & Co. and Silver Lake Partners submitted an 11th hour offer for Freescale, but the bid may have been too low and too late.

Dealmakers have been paying special attention to the semiconductor industry recently, and some big deals have followed.  For example, Advanced Micro Devices (AMD) agreed to acquire ATI Technologies for $5.4 billion in cash and stock this summer.   Mergers and acquisitions in the chip space are booming  and several electronics companies have initiated spin offs of their semiconductor divisions.

“We think managers in the semiconductor industry need to start thinking more seriously about capital structure or risk some unwanted but long overdue attention from activist investors and buyout firms,” said Joe Osha, a Merrill Lynch analyst in a note to investors last month, the NYT noted.

Freescale is ranked the 10th largest integrated circuits supplier by market research and analyst firm IC Insights.