By Shannon Davis, Web Editor
Chipmaker NXP Semiconductors NV announced Sunday night that it has agreed to buy Freescale Semiconductor Ltd for $11.8 billion and merge business operations. The combined enterprise values at just over $40 billion and will create a new leader in the auto and industrial semiconductor markets.
“Financially, this deal makes sense. By being bigger, you limit the impact of the product cycles and volatile end markets,” said RBC analyst Doug Freedman.
NXP and Freescale shares were trading about 16 and 11 percent higher, respectively, on Monday morning, reflecting investors’ confidence in the deal. NXP anticipates achieving cost savings of $200 million in the first full year after closing the transaction, with a clear path to $500 million of annual cost synergies. 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.
This deal is the fourth semiconductor merger and acquisition so far this year, and it will be the biggest of these by far.
Last month, Avago Technologies agreed to would buy wireless networking company Emulex Corp for more than $600 million, while MaxLinear said it would buy Entropic Communications Inc for $287 million. In January, Lattice Semiconductor announced the acquisition of Silicon Image for $600 million.
Freescale was originally created as a division of Motorola in 1948, which would become one of the world’s first semiconductor businesses. Freescale would eventually leave Motorola in 2004, to be acquired in 2006 by Blackstone Group LP, Carlyle Group LP, TPG and Permira. Now based out of Austin, Texas, Freescale currently operates in more than 25 countries, while generating net sales of $4.6 billion in 2014.
NXP is based in Eindhoven, the Netherlands and has operation in more than 25 countries, generating revenue of $5.7 billion in 2014.
“In the short-term, we will continue to benefit with the secular trend of increasing semiconductor content in auto market. The trend has a positive effect on both companies’ portfolio of products. Longer term, the merged company is superbly positioned to become the thought leader in the merging areas of secure cars and Advanced Driver Assistance Systems to facilitate smarter driving,” NXP said on a Monday investor call.
The transaction is expected to close the second half of the 2015 calendar year, after which Freescale shareholders will own approximately 32 percent of the combined company.
Credit Suisse acted as financial adviser to NXP, while Morgan Stanley advised Freescale.