Skip to main content

Prior to selling out to a group of private equity firms,

Freescale Semiconductor


had its own sights on the chip business of

Philips Semiconductor

and was also exploring a merger with another company.

Meanwhile, the buyout offer that Freescale ultimately accepted from a private equity consortium led by Blackstone Group was at the low end of a rival bid from Kohlberg Kravis Roberts and Silver Lake Partners, according to a report filed with the

Securities and Exchange Commission


The filing sheds new light on one of the biggest private equity technology buyouts in history, which was marked by a rare bidding war between the usually clubby private equity players.

It also suggests that no one else is likely to step in and top Blackstone's current bid. While Freescale has contacted six other parties about a potential transaction, in keeping with the 50-day "go shop" provision in the agreement, it acknowledged that none have submitted a proposal to pursue a strategic transaction with the company.

Freescale, a former division of


TheStreet Recommends


, makes chips for the fast-growing cell phone handset market, as well as integrated circuits sold into less glamorous, but stable markets such as automotive and industrial equipment. The company, which had $5.4 billion in annual sales last year, announced in mid-September

its $17.6 billion buyout by the private equity consortium of Blackstone Group, Carlyle Group, Permira Funds and Texas Pacific Group.

According to the SEC filing, Freescale's management enlisted the help of Goldman Sachs and the law firm Wilson, Sonsini, Goodrich & Rosati to consider various strategic options, including selling a portion of the company.

The chipmaker also considered bulking up by acquiring two different companies. Freescale was in talks with an unnamed third-party company about a potential merger throughout 2006, but the talks broke off in July, according to the filing.

Freescale's management also considered acquiring the chip division of Philips Semiconductor, since renamed NXP, in early 2006 and continued to evaluate such a deal a few weeks before Philips sold the business to a group of private equity firms including KKR. Freescale didn't say whether it actually entered formal discussions with Philips about a possible deal or why it ultimately decided against the acquisition.

The deal with Blackstone followed months of on-and-off negotiations between the two parties, during which Blackstone's offer for Freescale fluctuated above and below the $37-to- $38-a-share purchase price it initially put on the table.

At the eleventh hour of the Blackstone deal, KKR and Silver Lake swooped in and indicated that they would be willing to pay $40 to $42 a share for Freescale. The KKR consortium said they could pay more than any other buyer "due to the synergies that they could generate by combining Freescale with the semiconductor business that it was under contract to acquire," i.e., the Philips Semiconductor business.

Philips and Freescale have a number of complementary chip offerings targeting the wireless, automotive and consumer electronics markets. Some analysts speculated at the time that the two companies could be combined

to create a new entity that ranked among the top 10 chip companies, or combined and subsequently divided into smaller, more-focused semiconductor firms.

But Freescale ultimately accepted Blackstone's "best and final" offer of $40 a share, based on the greater certainty of that transaction being completed, doubts about KKR being able to finance the acquisitions of both Philips and Freescale and the Blackstone Group's threat to walk away if its offer was not accepted within a tight deadline.

Freescale believed it could continue to negotiate with KKR after inking a deal with the Blackstone Group thanks to the agreement's "go shop" provision. But the day after Freescale and Blackstone sealed the deal, KKR and Silver Lake said they were no longer interested in pursuing a transaction with the company.

Freescale's board has since identified six potential strategic partners, based on size and business interests, to court during the go-shop phase. As of Tuesday however, none have indicated any interest in a transaction with Freescale.

Shares of Freescale were up 0.5%, or 19 cents, to $38.31 in midday trading.