Proving the Business Case for the Internet of Things

NXP buys Freescale for $11.8bn

Steve Rogerson
March 3, 2015
 
In a move that has major implications for the logistics industry, NXP Semiconductors is buying Freescale Semiconductor for about US$11.8bn to create what should be the market leader in general purpose microcontroller products. Both companies have been making microcontrollers and other devices for all M2M and IoT sectors, notably automotive, and the combined company is expected to become the market leader in automotive semiconductors.
 
Dutch company NXP has been one of the pioneers in connected car trials in Europe, a technology that will be used more and more by the logistics industry. And Freescale is one of the top automotive MCU manufacturers,
 
The combined enterprise is valued at just over $40bn and the combined revenue is more than $10bn. The transaction is expected to close in the second half of calendar 2015.
 
"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 officer. He will continue to be the president and chief executive officer of the merged company.
 
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.
 
“The combination of NXP and Freescale creates an industry powerhouse focussed on the high growth opportunities in the smarter world,” he said. “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 maximise value for both Freescale and NXP shareholders.”
 
The 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.
 
"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 president and chief executive officer. “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.”
 
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.
 
NXP intends to fund the transaction with $1.0bn of cash from its balance sheet, $1.0bn of new debt and approximately 115 million NXP ordinary shares. Post transaction, Freescale shareholders will own approximately 32 per cent of the combined company.
 
Credit Suisse acted as exclusive financial adviser to NXP, along with Simpson Thacher & Bartlett and De Brauw Blackstone Westbroek, who 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 who served as legal adviser.