NXP Semiconductors NV (NASDAQ:NXPI) and Freescale Semiconductor Ltd (NYSE:FSL) have decided to merge taking value of the combined enterprise at over $40 billion, making it the biggest supplier of microchips to the automotive industry. Amongst the 4 semi-conductor sector M&A deals in the recent past, this is the biggest one.
Freescale was formerly a division of the Motorola Inc. and is best known for making microprocessors and microcontrollers for cars and industrial equipment. Its chips are also used in consumer products like Amazon.com, Inc. (NASDAQ:AMZN)’s Kindle e-reader. It separated from Motorola in 2004, after 2 years of which a group of private equity firms like Blackstone group LP, Carlyle Group LP, TPG and Permira acquired it in a leveraged buyout for $17.6 billion. The company had gone public in 2011 in which Blackstone was its major stockholder.
As per the terms and conditions of the deal, the shareholders of Freescale will receive $6.25 in cash and 0.3521 of an ordinary share in NXP for each share held in Freescale at the end of the transaction. The total equity value of this deal is estimated to be around $11.8 billion while the enterprise value is estimated at $16.8 billion (including net debt of Freescale). Post this deal, the shareholders of Freescale would possess 32% of the shares of the merged company.
In the previous 12 months, shares of NXP Semiconductors NV (NASDAQ:NXPI) have grown by 51% while Freescale has increased by 59%. It is expected that the deal will be through by the end of the year 2015. For the purpose of funding, NXP will bring $1.0 billion cash from its balance sheet, $1.0 billion of new debt and approx. 115 million of ordinary NXP shares.
For the purpose of the deal, Credit Suisse acted as the financial advisor to NXP while Morgan Stanley advised Freescale.