NXP buys Freescale, maker of PowerPC technology

AUSTIN, Texas. Officials at NXP Semiconductors N.V. and Freescale Semiconductor, Ltd. announced that the two companies have signed a definitive agreement that will have NXP merge with Freescale in a transaction valued at just over $40 billion. Freescale's PowerPC chips fuel computing and signal processing in many defense electronics applications such as avionics, radar, and electronic warfare.

According to an release the merger would create a company with a combined revenue of more than $10 billion, that will be the leader in automotive semiconductor solutions and tin general purpose microcontroller (MCU) products.

“Today’s announcement is a transformative step in our objective to become the industry leader in high performance mixed signal solutions," says said Richard Clemmer, NXP Chief Executive Officer, who will continue to be the President and Chief Executive Officer of the merged company. "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 and NXP shareholders."

“We believe this merger will create significant value for Freescale’s and NXP’s shareholders, customers and employees," says Gregg Lowe, President and Chief Executive Officer of Freescale Semiconductor. "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.”

The transaction should be accretive to NXP non-GAAP earnings and non-GAAP free cash flow. NXP officials say they anticipate reaching cost savings of about $200 million in the first full year after closing the transaction, with a clear path to about $500 million of annual cost synergies.

Under the terms of the agreement, Freescale shareholders will get $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 February 27, 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 this calendar year. NXP officials intend to fund the transaction with $1.0 billion of cash from its balance sheet, $1.0 billion of new debt, and about 115 million NXP ordinary shares. Post transaction, Freescale shareholders will own approximately 32 percent 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 the exclusive financial adviser to NXP, along with Simpson Thacher & Bartlett and De Brauw Blackstone Westbroek, who were legal advisers. Credit Suisse is also providing committed financing for the transaction. Morgan Stanley is the exclusive financial adviser to Freescale, along with Skadden, Arps, Slate, Meagher & Flom who served as legal adviser.

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