Freescale agrees to $19.7b equity buyout

Freescale Semiconductor Inc. has agreed to be acquired by a group of investment firms for US$17.6 billion.

A consortium of four private equity firms plans to buy the big Austin, Texas, chipmaker for $40 per share in cash. The deal is subject to regulatory approvals and a vote by Freescale shareholders. Freescale’s board of directors has unanimously approved the sale, the company announced Friday.

The offer price represents an approximately 36 percent premium over the company’s average closing share price in the 30 days ended Sept. 8.

Freescale, a spinoff of Motorola Inc., went public on its own in 2004 and had sales of US$5.8 billion in 2005. It designs and manufactures embedded networking, wireless, automotive, industrial and consumer product chips.

Under the deal, Freescale is allowed to solicit other proposals for the next 50 calendar days and can respond to unsolicited offers, subject to a deal breakup fee.

The consortium is led by The Blackstone Group, in New York, and includes The Carlyle Group, Permira Funds and Texas Pacific Group.

The buyers probably want to split Freescale up into three companies in a series of initial public offerings, said Forward Concepts Co. analyst Will Strauss. The company has been generally successful in the automotive, networking and wireless chip businesses and has seen its stock rise since the spinoff, he said. Those three main businesses could be easily spun off separately, he said.

It’s common for private investors to buy a company so they can make changes that would be harder to carry out if it remained public, said Nathan Brookwood, an analyst at Insight 64.

Even if the board wanted to remain in control of Freescale, they had little choice with private investors willing to pay a significant premium, Strauss said.

“The stockholders would tar and feather the board if they didn’t accept the offer,” he said.

Freescale is the biggest supplier of automotive chips in North America, has a strong business in processors for network gear and is still the exclusive supplier to Motorola of some key cell phone chips, while expanding its customer base, Strauss said. Freescale customers probably won’t feel any impact from the buyout, at least in the next six months, he said.