NXP Semiconductors NV and Freescale Semiconductor Ltd. on Sunday night entered into a merger deal that values Austin, Texas-based chipmaker Freescale at $11.8 billion. The new company would have a market value of more than $40 billion and is expected to cut costs and fuel further growth in market share.
Under the terms of the deal, Netherlands-based NXP is going to pay about $36.14 a share in cash and stock for Freescale, slightly higher from its Friday’s close of $36.11 a share. In other words, Freescale shareholders are entitled to receive $6.25 in cash and 0.3521 of an NXP share for each Freescale share. Freescale shareholders will get about 32% of the combined company. The stock had been strengthening recently in the wake of reports about a possible sale of the company.
NXP said the deal offers a “clear path” to achieve an annual cost synergy run rate of approximately $500 million, with $200 million in cost savings to be realized in the year after the merger is completed.
The transaction supports view that semiconductor companies are coming back into the strong position required to chase large mergers and acquisitions at a time when their major clients, such as cell phone makers, are looking for ways to consolidate suppliers. Freescale’s chips are being used in consumer products such as Amazon’s Kindle e-reader.
The agreement makes an addition to the mergers-and-acquisitions activities, which climbed higher in 2014, and may bring another strong year. The transaction comes after three semiconductor sector M&A deals in 2015 and is the largest so far.
Not more than a week ago, Avago Technologies agreed to acquire wireless networking company Emulex Corp in a deal valued at more than $600 million, while MaxLinear said early February it is going to takeover Entropic Communications Inc for $287 million. In January, Lattice Semiconductor said it would buy Silicon Image for $7.30/share, representing an equity value of $600M.
“Financially this deal make sense. By being bigger you limit the impact of the product cycles and volatile end markets,” said RBC analyst Doug Freedman.
The deal unanimously approved by the boards of directors of both companies will be completed in the second half this year. NXP plans to use $1.0 billion of cash from its balance sheet, $1.0 billion of new debt and about 115 million of its shares in order to fund the transaction.
NXP is operating in more than 25 countries and reported net sales of $5.7 billion in 2014. Austin, Texas-based Freescale also is present in more than 25 countries and reported revenue of $4.6 billion in 2014.
