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NXP acquiring Freescale for $11.8B; shooting for Nº 1 automotive semiconductor supplier

NXP Semiconductors N.V. and Freescale Semiconductor, Ltd. have entered into a definitive agreement under which NXP will merge with Freescale in an approximately $11.8-billion cash and equity transaction. The resulting combined enterprise would be valued at just over $40 billion (representing enterprise value as of the market close 27 February 2015). The merger creates a high performance mixed signal semiconductor industry leader, with combined revenue of greater than $10 billion.

The merged entity will become the market leader in automotive semiconductor solutions, surpassing Infineon and Renesas, as well as becoming the market leader in general purpose microcontroller (MCU) products, NXP and Freescale said. According to IHS, Infineon Technologies AG took the top spot from Renesas Electronics Corp. in automotive semiconductor sales in 2014 with sales of about $2.8 billion. The previous year Infineon had been on about $2.4 billion in sales and $500 million behind long-time market leader Renesas.

In 2014, Freescale posted $1.186 billion in Automotive MCU sales, not including sales of microcontrollers and analog and sensor products for automotive applications; NXP posted $1.144 billion in revenue from its automotive group.

The combined company will capitalize on the growing opportunities created by the accelerating demand for security, connectivity and processing, the two companies said. Richard Clemmer, NXP CEO, will continue to be the President and Chief Executive Officer of the merged company.

Today’s announcement is a transformative step in our objective to become the industry leader in high performance mixed signal solutions. 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.

—Richard Clemmer

The transaction is expected to be accretive to NXP non-GAAP earnings and non-GAAP free cash flow. 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.

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 $11.8 billion (based on NXP’s closing stock price as of 27 February 2015) and a total enterprise value of approximately $16.7 billion including Freescale’s net debt.

The transaction is expected to close in the second half of calendar 2015. NXP intends to fund the transaction with $1.0 billion of cash from its balance sheet, $1.0 billion of new debt and approximately 115 million NXP ordinary shares. Post transaction, Freescale shareholders will own approximately 32% of the combined 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.

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.

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