Freescale weighs stock of­fer­ing

But IPO un­likely to oc­cur soon for chip­maker taken pri­vate in 2006, say an­a­lysts, cit­ing debt

Austin American-Statesman - - BUSINESS & PERSONAL FINANCE - By Kirk Laden­dorf

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.

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