In Deal Worth $11.8 Billion, NXP Semiconductor Pays No Premium for Freescale

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In an announcement made late Sunday night, NXP Semiconductors N.V. (NASDAQ: NXPI) and Freescale Semiconductor Ltd. (NYSE: FSL) said the two firms had reached a definitive agreement under which NXP will pay $6.25 in cash and 0.3521 of an NXP ordinary share for each common share of Freescale stock. That totals $11.8 billion and represents essentially no premium to Friday night’s closing price of $36.11 for Freescale stock.

NXP is a spin-off of Dutch giant Philips, and Freescale began life as the chip division of Motorola. Freescale was acquired in 2006 by a group of buyers led by Blackstone, and NXP was acquired by private equity firms KKR, Bain, Silver Lake and Apax in the same year. NXP came public in 2010 and Freescale in 2011. The Blackstone group paid $17.6 billion for Freescale in 2006.

Both companies are large suppliers of chips for the auto industry and other sectors requiring mixed signal processors. A major competitor is Texas Instruments Inc. (NASDAQ: TXN).

One of NXP’s biggest customers is Apple Inc. (NASDAQ: AAPL), which uses an NXP chip in the iPhone 6 and 6 Plus for near-field communications (NFC) transactions like Apple Pay.

Combined, the two companies will have total debt of $9.5 billion, according to a report at the Financial Times.

The announcement of the deal says NXP expects the transaction to be accretive to non-GAAP earnings and free cash flow and to achieve cost savings of $200 million in the first full year after closing with a “clear path” to annual savings of $500 million.

NXP will fund the transaction with $1 billion in cash, $1 billion new debt and about 115 million shares of NXP stock. After the transaction closes, Freescale shareholders will own about 32% of the new company.

Freescale’s stock traded up nearly 8% in Monday’s premarket, at $38.92 in a 52-week range of $15.29 to $38.94. Perhaps investors are hoping for a higher bid.

NXP’s stock traded up nearly 9% Monday morning to $92.50, well above the top of the 52-week range of $53.81 to $86.50, perhaps indicating what a great deal NXP just made.

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