RF business in spotlight following Freescale buyout
the proposed leveraged buyout (LBO) of Freescale Semiconductor will force the company to assume much larger debt than NXP, formerly Philips Semiconductor, or Avago Technologies, formerly part of Agilent, two recent semiconductor LBOs, putting its RF operations at risk, according to Strategy Analytics.
Freescale has agreed to an offer valued at $17.6bn from an investor group that included Blackstone Group, Carlyle Group, Permira Funds and Texas Pacific Group. Warned Strategy Analytics, earnings inadequate to cover interest payments could easily lead to wholesale dismantling of Freescale, which would put Freescale's RF and wireless products in particular danger, given that these products benefit from Freescale's complete platform solutions.
"At the proposed price of $40 per share, the Freescale LBO could generate more than $11bn in debt for the company", said Chris Taylor, director of the RF and wireless component service at Strategy Analytics. "Servicing this debt will prove a challenge unless the company can maintain the growth and profitability that it experienced in Q2 without letup."
"After this LBO, we are particularly concerned about Freescale's ability to fund the development of new RF products, such as power amplifiers for W-CDMA handsets and platforms for UWB and ZigBee", said Asif Anwar, director of the GaAs and compound semiconductor service at Strategy Analytics.
The LBO wasn't the only option Freescale considered for the direction of the company. Freescale was in the running to purchase Philips Semiconductors, now NXP, before it chose to be acquired by a group of private equity firms, according to documents the company filed with the U.S. Securities and Exchange Commission. The company shelved the idea in July, however, and eventually settled on its own private equity buyout.
13-Nov-2006