NXP Semiconductor will buy out Freescale Semiconductor in a deal that’s reportedly worth $11.8 billion. According to Freescale CEO Gregg Lowe’s letter to employees, “As the transaction is subject to stockholder and regulatory approvals, the merger will likely not close until the second half of 2015.”
Back in 2006, a group of private equity firms bought Freescale from Motorola for $17.6 billion. Everything after that has been an uphill battle for the Texas-based chip-maker. At the height of the financial crisis during the late 2000s, Freescale’s earnings dipped 80 percent. Things looked even gloomier when demand fell and Freescale’s former parent company, Motorola, dropped it completely.
It was not only until the company’s private equity owners made some drastic cost cutting moves and management changeups that the company was finally stabilized.
Both Freescale and NXP have rebounded from hard times, but they’re far from breaking even. The private equity firms that bought out Freescale will recoup some of their investments, but the combined company still faces a $9.5 billion debt load.
Wall Street money gurus, however, are hoping that the $500 million in savings they get out of the merger will help raise the stock price of the combined company.
NXP and Freescale are some of the companies benefitting the most of the Internet of Things era. Both are involved in the production of embedded technologies that allow gadget makers such as Apple to ‘connect’ wirelessly with other equipment such as a tap-n-pay terminal. Apple’s latest iteration of the iPhone is helping to propel the adoption of near field communication (NFC) technology, and NXP is one of the few key players in this area. Both companies have also developed product lines of chips for use in cars. The merger will increase the combined company’s dominance in the automotive sector.
Freescale and NXP possess well-rounded embedded technology portfolios, and the merging of the two will likely create a force to be reckoned with as the IoT era unfolds.
