Freescale weighs stock offering
But IPO unlikely to occur soon for chipmaker taken private in 2006, say analysts, citing debt
Austin-based Freescale Semiconductor Inc., which was taken private in a leveraged buyout in 2006, acknowledged that it is having preliminary discussions with investment bankers about a potential public offering of stock.
Discussions about a possible IPO are “more active today than they were a while back,” said Freescale CEO Rich Beyer in an interview this week with Bloomberg News.
Freescale has said that a public stock offering would make sense when the company can show solid growth and operating profits, investment markets are receptive and the semiconductor industry is on an upswing.
A public stock offering might give the company some resources to pay down its sizable debt — $7.6 billion at the start of July — and allow its private equity investors to dispose of some or all of their shares.
The chipmaker, which employs 5,000 people in Austin and about 20,000 worldwide, went through a painful restructuring in 2009 when it exited one of its businesses that developed wireless processors for cell phones.
This would not be Freescale’s first IPO. The company originally was part of Motorola Inc., which spun it off in a 2004 stock offering. Inves-
tors offered $13 a share — 26 percent below Freescale’s target price.
In 2006, Freescale was taken private in a $17.6 billion transaction by Blackstone Group, Carlyle Group, Permira Advisers and Texas Pacific Group. Many analysts now regard the Freescale buyout — at the time, the largest in the technology industry — as a historic investment mistake.
Those investors paid $40 a share, a 30 percent premium over Freescale’s stock price. Freescale ended up with substantial debt on its balance sheet as a result of the deal.
Blackstone President Tony James said this week during a presentation to the Oregon Investment Council that the company is “about to file to go public,” Bloomberg reported.
An IPO might allow Blackstone and the other investors to salvage some of the $7 billion of their own money that they put into Freescale. One event that Freescale may be looking at is the fate of a proposed stock offering by NXP, a European chipmaker formerly owned by Royal Philips Electronics.
A group of private investors including Bain Capital and Kohlberg Kravis Roberts & Co. bought 80.1 percent of that company in 2006 for $11.1 billion. Since then, the company has shed some of its business units and begun a program to restructure the company and look for highend products with higher profit margins.
NXP filed in April for a $1.2 billion stock offering, but it has yet to go public. If the NXP offering takes place, then Freescale may regard the market as ready for its own IPO.
Analysts say Freescale still has too much debt. The company’s latest balance sheet shows a “stockholder’s deficit” of $4.7 billion, which means that its liabilities exceed its assets by that amount.
“I don’t see (an IPO) happening soon,” said analyst Jason Pompeii with Fitch Ratings. “The company still needs some time. They are focused on revenue growth and restoring profitability and with that, over time, it improves the appetite for a stock offering.
“The issue the company still has is, we don’t believe they will generate sufficient cash flow from operations” to meet its debt obligations, Pompeii said. “They are going to have to refinance a meaningful proportion of their upcoming (debt) maturities over the next few years.”
Standard & Poor’s, another rating agency, grades Freescale’s debt as B-, which is “fairly weak in the speculative-grade category,” analyst Lucy Patricola said.