NXP and Freescale announce $40bn merger

May 2015 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

NXP Semiconductors and Freescale Semiconductor, Inc. have announced that they have entered into a definitive agreement which will see NXP merge with Freescale in a transaction with a combined enterprise value of just over $40bn.

The merger creates a high performance mixed signal semiconductor industry leader, with combined revenue over $10bn. The merged entity is poised to become the market leader in automotive semiconductor solutions and the market leader in general purpose microcontroller (MCU) products. The combined company will capitalise on the growing opportunities created by the accelerating demand for security, connectivity and processing.

An innovator in the automotive, identification and mobile industries, and in application areas including wireless infrastructure, lighting, healthcare, industrial, consumer tech and computing, NXP has operations in more than 25 countries and last year posted revenues of $5.65bn.

NXP intends to fund the transaction with $1bn of cash from its balance sheet, $1bn of new debt and approximately 115 million NXP ordinary shares. Post transaction, Freescale shareholders will own approximately 32 percent of the combined company.

The NXP/Freescale transaction is expected to be accretive to NXP non-GAAP earnings and non-GAAP free cash flow. NXP anticipates achieving cost savings of $200m in the first full year after closing the transaction, with a clear path to $500m of annual cost synergies.

As far as Freescale is concerned, under the terms of the agreement, Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the close of the transaction. The purchase price implies a total equity value for Freescale of approximately $11.8bn (based on NXP’s closing stock price as of 27 February 2015) and a total enterprise value of approximately $16.7bn including Freescale’s net debt.

The transaction has been unanimously approved by the boards of directors of both companies and is subject to regulatory approvals in various jurisdictions and customary closing conditions, as well as the approval of NXP and Freescale shareholders.

“Today’s announcement is a transformative step in our objective to become the industry leader in high performance mixed signal solutions,” said Richard Clemmer, NXP chief executive. “The combination of NXP and Freescale creates an industry powerhouse focused on the high growth opportunities in the Smarter World. We fully expect to continue to significantly out-grow the overall market, drive world-class profitability and generate even more cash, which taken together will maximize value for both Freescale and NXP shareholders.”

Following the completion of the merger, Mr Clemmer will continue in his role as chief executive and president.

Fellow multinational Freescale, like NXP, is committed to supporting science, technology, engineering and math (STEM) education.

“We believe this merger, which combines two highly successful and complementary companies, will create significant value for Freescale’s and NXP’s shareholders, customers and employees,” said Gregg Lowe, Freescale Semiconductor’s president and chief executive. “Both companies have built leadership positions and have a sharp focus on delivering superior value to customers. Our combined scale, size and global reach will position our new company to deliver sustainable above market growth. It will also serve to accelerate the strategic plans both companies have invested in, enabling us to deliver more complete solutions to customers.”

Credit Suisse acted as exclusive financial adviser to NXP, along with Simpson Thacher & Bartlett and De Brauw Blackstone Westbroek, which served as legal advisers. Credit Suisse is also providing committed financing for the transaction. Morgan Stanley acted as exclusive financial adviser to Freescale, along with Skadden, Arps, Slate, Meagher & Flom which served as legal adviser.

The NXP/Freescale transaction is expected to close in the second half of 2015.

Fraser Tennant