Freescale Mulled Over Buying Philips Semi

By Colleen Taylor -- Electronic News, 10/4/2006

Freescale Semiconductor Inc. was in the running to purchase Philips Semiconductors before it chose to be acquired by a group of private equity firms, according to documents the company filed this week with the U.S. Securities and Exchange Commission (SEC).

Freescale said it had been evaluating a bevy of options for the direction of the company since its initial public offering in 2004. In early 2006, the Austin-based company began to consider the possibility of acquiring the semiconductor business of Philips Electronics, according to the SEC filing.

"The company began to have preliminary discussions with a third party regarding the possibility of a merger and the board of directors retained Wilson Sonsini Goodrich & Rosati, Professional Corporation, to assist the board of directors with its evaluation of various strategic alternatives of the company," Freescale stated in the filing.

Freescale went back and forth with its advisors, seriously considering the Philips acquisition for months. The company even entered into a confidentiality agreement with The Blackstone Group, a private equity firm, to evaluate a merger between Freescale and Philips.

However, talks of acquiring Philips Semiconductor were shelved on July 11, the company said. In mid-September, Freescale ultimately agreed to be purchased in an offer valued at $17.6 billion from an investor group that included Blackstone Group, Carlyle Group, Permira Funds and Texas Pacific Group.

As for Philips Semiconductor, in August, Bain Capital, Kohlberg Kravis Roberts & Co., Silver Lake Partners, AlpInvest Partners NV and Apax Partners formed a private equity consortium to acquire an 80.1 percent stake in the semiconductor division of Royal Philips Electronics, valued at $10.68 billion. 

The sale was complete in September, and Philips Semiconductors debuted as a standalone company with a new moniker, NXP. Royal Philips Electronics began moving away from semiconductors in December 2005, when it announced its semiconductor division would be legally separated as part of business renewal objectives.

Some analysts say the action at Freescale and NXP are just the beginning. Indeed, more private equity buyouts involving "major companies" can be expected in the near future for the semiconductor industry, according to Dale Ford, director of research at iSuppli.