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Exclusive: PE-backed Freescale mulls IPO: sources
July 21, 2010 / 11:11 PM / 7 years ago

Exclusive: PE-backed Freescale mulls IPO: sources

NEW YORK/SAN FRANCISCO (Reuters) - The private equity owners of Freescale Semiconductor FSLSM.UL are considering taking the diversified chipmaker public and preliminary talks have started with banks, several sources familiar with the situation said.

Austin, Texas-based Freescale was spun off from Motorola Inc MOT.N in 2004. A Blackstone Group-led (BX.N) consortium took the company private in a $17.6 billion leveraged buyout in 2006. The consortium also included Carlyle Group CYL.UL, Permira Funds and TPG Capital TPG.UL.

The private equity owners and Freescale declined comment.

Freescale struggled after it went private, losing billions of dollars in 2007 and 2008 before posting an annual profit in 2009. Michel Mayer, who steered the company through its spinoff and private equity buyout, departed in 2008 and was replaced by current CEO Rich Beyer.

However, the outlook for semiconductor companies has drastically improved over the past year, as demand for items such as consumer electronics, networking products and industrial equipment has bounced back.

Global sales of semiconductors in May surged 47.6 percent from a year earlier to $24.7 billion, according to data provided by the Semiconductor Industry Association.

Freescale’s Beyer has himself said that an IPO would be a likely exit route for the private equity owners, although there was no pressure to go public.

“The sponsors (private equity owners) envision that they will continue to hold their ownership in the company out into the future, so they’re not putting pressure,” Beyer said in an April interview with Reuters. “At the appropriate time, we’ll likely take the company public,” he said.

Beyer said at the time that if Freescale were to go public, the money raised in an IPO would not be from selling investors’ shares, but rather from creating new shares. The funds would be used to help pay down the company’s more than $7 billion in debt.

Private equity firms have been taking advantage of greater stability in markets to bring a number of portfolio companies public. The recent credit crisis had effectively shut the IPO window.

Still, no actual decision has been made about a Freescale IPO at this point, sources said, describing the process as still in an exploratory phase.

Freescale, which makes chips for a wide range of uses including cars, networking, industrial and consumer products such as Inc’s (AMZN.O) Kindle electronic-reader, posted revenue of $3.5 billion in 2009. Its largest end markets are automotive and networking.

Sterne, Agee & Leach analyst Vijay Rakesh said with the looming threat of a double-dip recession, there is “a small window here to go out, and they’ve been waiting for some time.” Rakesh said Freescale’s performance seems to have improved.

“They’ve definitely shrunk quite a bit, but in some of the core processor market they still seem to be holding their share and doing well.”

Freescale is phasing out its wireless chipset business, which supplies handset makers such as Research in Motion Ltd RIM.TO. It also slashed headcount to 20,000 over the past two years, although it begun hiring again this year as business improved, Beyer said in April, adding as many as 1,000 employees.

This year other chipmakers have also started the process of going public or launched IPOs.

NXP Semiconductors N.V.., owned by a consortium of private equity investors, including Kohlberg Kravis Roberts & Co KKR.UL, Bain Capital and Silver Lake Partners filed with U.S. regulators to go public while Alpha and Omega Semiconductor Ltd (AOSL.O) started trading in April.

Reporting by Megan Davies in New York; additional reporting by Gabriel Madway in San Francisco and Clare Baldwin in New York; editing by Robert MacMillan, Bernard Orr and Andre Grenon

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