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Freescale Semiconductor Buyout? 67

Posted by Hemos from the removal-from-the-market dept.
Alchemist253 writes "The New York Times is running an article about a possible leveraged buyout of speciality chipmaker Freescale Semiconductor. Freescale currently makes a variety of embedded processors, microcontrollers, and memory, but is probably best known to the Slashdot crowd as the Motorola spinoff that supplied Apple its PowerPC chips before the shift over to an Intel architecture. From the article, "A consortium of investment firms was near a deal late last night to acquire Freescale Semiconductor... for more than $16 billion, according to people briefed on the negotiations. The deal, if completed, would be the largest leveraged buyout ever in the technology sector, surpassing the $11.3 billion sale of SunGard Data Systems last year.""
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Freescale Semiconductor Buyout? More

Freescale Semiconductor Buyout?

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  • What is a leveraged buyout?

    • Re: (Score:2, Informative)

      by Colin Smith ( 2679 )
      http://en.wikipedia.org/wiki/Main_Page [wikipedia.org]

    • What is a leveraged buyout?

      From the Wikipedia entry on it [wikipedia.org]:

      A leveraged buyout (or LBO, or highly-leveraged transaction (HLT), or "bootstrap" transaction) occurs when a financial sponsor gains control of a majority of a target company's equity through the use of borrowed money or debt.

      So, they're essentially borrowing money to buy them out. What does this mean? Well, perhaps the people buying them out think they can pay that debt off quickly or they have a lot of money in the bank and qualified for th

      • Re: (Score:3, Insightful)

        by oscarmv ( 603165 )
        In fact Freescale is a major player in the embedded processor and other specialized processor markets, and even in the heyday of its relationship with apple, the percent of business that represented was a drop in the bucket.

        If you want to figure that one out, start checking what CPU your router is using, or your car, or a gazillion of those things nowadays that happen to use a CPU even if it doesn't boot in a GUI OS nor is used plugged to keyboard and monitor.

      • Re:Borrow Money to Buyout a Company (Score:4, Insightful)

        by Otter ( 3800 ) on Monday September 11, 2006 @08:56AM (#16080248) Journal
        1) Typically LBO purchasers are getting their money either from bonds or from a pool of private equity, not from a bank loan.

        2) Again typically, the plan is to sell off unproductive parts of the company, cut costs, or increase value with some other short-term plan.

        3) If there were some obvious decline facing Freescale, it would already be priced into the stock.

        4) As someone else has pointed out, this is a huge company that isn't a familiar name only because it doesn't make branded consumer products.

        • Re: (Score:3, Insightful)

          by nelsonal ( 549144 )
          In regard to point 1, it wouldn't be an LBO (just an offer or BO) if some of the money weren't coming from loans. Most of the time the banks require a decent portion of the money to be invested by the fund but will loan a large amount of the transaction.
      • LBOs happen when a companies managers think the company is more valuable than the investors assume - so the managers buy out the company. Typically, this leads to a lawsuit against the managers, since the "only way" they could make a profit is if they used to be shirking, and afterwards started working. This appears to be a special case - probably the managers don't think losing Mac was as bad as the shareholders did.

      • Re: (Score:2, Interesting)

        by xlordtyrantx ( 958605 )
        Freescale has contracts with numerous companies. [freescale.com]

        * Motorola cell phones

        * Sony electronics

        * Whirlpool appliances

        * Logitech keyboards and mice

        * Lifefitness cardiovascular and strength training equipment

        * Cisco routers

        * Bose Acoustic Wave radios

        * Trane heating and cooling equipment

        * Mercedes, BMW, Ford, Hyundai and General Motors vehicles

      • Another reason to do a leveraged buyout is if the investors believe that they can "flip" the company. Basically the recipe goes:

        1. Borrow money
        2. Buy Company
        3. ???
        4. Sell Company at a profit

        Where ??? is re-organization, layoffs, restructuring, spin-offs, etc.

      • I would have predicted this company to drop in value after Apple went x86 architecture

        While I'm sure Apple is a nice customer to have, I can't imagine that their business would have been more than a tiny fraction of Freescale's business. Also, apple was not buying all their processors from Freescale - the G5s were from IBM.
      • Sometimes people partially borrow against shared they own, in other companies and the company they are going to buy out. It's always been a little strange to most people that you can borrow money against shares in the company that you're buying out with the money you just borrowed.

        Thousands of companies use Freescale parts. For example, Cisco has many service modules that use them, as do Cisco's competitors. Mostly these companies buy a PowerPC with a bunch of other stuff integrated into it, like GigE MACs,
    • When investors borrow a bunch of money and buy the company (it's a pretty similar transaction to a home mortgage). Sometimes management does it (Safeway), other times they are hostile (Nabisco is the biggest example). Usually there is a portion of the business that the investor believes they can sell to cover a big portion of their purchase price right away (for example if you were to buy Disney an investor could quite easily sell the theme parks or ESPN (or both) and probably cover a decent portion of th

    • Re: (Score:2)

      by JanneM ( 7445 )
      What is a leveraged buyout?

      When you buy something so big you need a crowbar to get it out the door.

      Actually it's when you don't have enough funds on hand to buy a company, so you borrow funds (money, stock) with the to-be-bought company as collateral, use it to buy the place, then, often, extract value from your newly bought company to pay back the loan. The name comes from using a loan as leverage to make a deal you couldn't have pulled off otherwise.

    • Re:Leveraged Buyout (Score:4, Insightful)

      by Ancient_Hacker ( 751168 ) on Monday September 11, 2006 @08:45AM (#16080185)
      A leveraged buyout is where one group of idiots with the gift of gab convinces another group of idiots with more money than sense, that the first group can better manage a company currently being run by a third group of idiots.

      It's particularly silly in this case, as Motorola/Freescale has been often held up (perhaps even partially correctly) as an example of really good management. It's hard to stay in business for 50+ years with bad management.

      The ideal case would be where the company *is* being run by clueless types. Or managers that emphasize long-term results versus quick cashouts. In those cases the blabby idiotsd can run the company into the ground and get lots of cash for a few years at least until all the cash cows have been milked dry.

      • Re: (Score:3, Informative)

        by Mr Z ( 6791 )

        Motorola/Freescale held up as an example of good management? Maybe other divisions of Motorola, but even then I'm not so sure. [businessweek.com] As I recall, what became Freescale almost never made a profit when it was Motorola Semiconductor, and just ended up being a training ground for other companies. [eetimes.com] MSPS just liked to bleed money. [yeald.com] That was true even before the tech bubble burst.

        I won't comment on Freescale as my employer competes directly with them. I don't mind commenting on old news though.

        --Joe

        • Re: (Score:1)

          by Mr Z ( 6791 )
          I won't comment on Freescale as my employer competes directly with them. I don't mind commenting on old news though.

          Clarification: I won't comment on Freescale post spin-off. Obviously I commented on MSPS, which is what became Freescale.

          --Joe

        • Re: (Score:1)

          by absorbr ( 995554 )
          well, FSL did report increasing earnings each quarter for the last 7 quarters..... They are on track for almost $2 per share annually. It could be this potential for growth (for several reasons) that causes the buyers to believe that FSL is worth more than the market cap of 12.4 billion.

          • Re: (Score:1)

            by Mr Z ( 6791 )

            The current Freescale, unhindered by Motorola, may indeed be much more competitive than when it was MSPS. I was objecting more to the comment that Motorola was such a shining example of great management.

            --Joe

  • 'Buy' link (Score:1, Funny)

    by Anonymous Coward
    Creates a whole meaning to the 'buy' link on their webiste... ;)

  • TFP is WRONG (Score:4, Informative)

    by Chanc_Gorkon ( 94133 ) <<moc.liamg> <ta> <nokrog>> on Monday September 11, 2006 @08:18AM (#16080069)
    Apple did NOT get the G5 from Freescale. That came from IBM. Apple got the G4's from Freescale so the post is PARTIALLY correct. The PowerPC platform still has a strong presence in the server room and is FAR from dying. It just might not be used for desktop stuff anymore.

    • Re: (Score:2)

      by ooze ( 307871 )
      Actually the Desktop is the only place Power architecture isn't used on a big scale anymore. Just as x86 isn't used anywhere in any significant amounts but on the desktop.
      This has reasons. The decision which processor to use is made by technicians who know what they are doing virtually everywhere but at the desktop. But the vast majority of desktop decisions are made by corporate managers, that are bought by Microsoft or don't know anything else, which means the have to use x86 for (backwards) compatibility

      • Re: (Score:3, Interesting)

        by TheRaven64 ( 641858 )
        The only reason that x86 is still around is, that it is the only architecture Microsoft ever got their operating systems working on decently.

        Windows NT ran fine on PowerPC, Alpha, and (I believe) MIPS. The problem was the applications. Very few were ever ported to anything else, and most people wanted to run legacy DOS applications. If you had an Alpha, you could run x86 applications using DEC's FX32! to emulate it, but that somewhat defeated the point of using a fast chip.

        • Windows NT ran fine on PowerPC, Alpha, and (I believe) MIPS. The problem was the applications. Very few were ever ported to anything else, and most people wanted to run legacy DOS applications. If you had an Alpha, you could run x86 applications using DEC's FX32! to emulate it, but that somewhat defeated the point of using a fast chip.

          No. Windows did not run as well as other operating systems did on non x86 platforms. To blame it on the apps is unfair also. Apps drive an OS, not the other way around. Ap
          • NT ran fine on Alphas. It was the last non-x86 architecture supported in the run up to Windows 2000. In fact, there were even internal Microsoft builds of Win2k for Alpha from before Compaq pulled the plug* The real problem with running NT on Alpha was that you had to use FX!32 to get a lot of 3rd party software to run on your machine. FX!32 was great but there were programs it just wouldn't work for. All the enterprise stuff from Microsoft (Exchange, SQL Server, etc.) had native Alpha builds. Ponder
        • Microsoft never *released* a 64 bit version of NT on Alpha. Compared to any other Alpha operating system (that is, Tru64 or VMS), NT was crippled.
      • I've got nothing against the Power architecture and am not a fanboy of the x86 familly but could you point out why let's say an Opteron platform would be inferior to a Power one? Thought the latter was a well designed one and it's been on the rise the last couple of years.

        Microsoft joined the IBM Power PC bandwagon(?) with the Xbox360 and so far I haven't heard people complaining about BSOD or crappy performance. They may be able to pull one right every so often..

        I'd rather say that x86 is around because it
        • Rhaa.. one should read "thought the FORMER" (i.e. Opteron) and not the latter! Need to wake up.. badly.

        • Re: (Score:2, Informative)

          by Ilgaz ( 86384 )
          If we are speaking about POWER family (not PowerPC) Opteron is very "simple" compared to Power5 or soon to be released Power6 family.

          It seems Wiki's enterprise/CPU sections got rid of CPU fanboys,zeaolots (both CISC and RISC) lately and could be trusted for neutral information regarding these stuff.

          As a quad G5 owner thanks to Apple move to Intel, like-a-joke non serious claims like "5x faster than G5!" and entire Apple fanboy base becoming Intel fanatics, I felt forced to get all the information which I no

        • Re: (Score:3, Interesting)

          by ooze ( 307871 )
          I don't know whwther you have read this [arstechnica.com] review and benchmark comparison of the Old and the new PowerMac/MacPro.

          See, on one side we have the 3 years old Dual Single-Core G5 with 2,5GHz. On the other side we have the newest Dual DualCore Xeon with 2,66GHz. That is 3 years advance in technology and manufactoring process (even a geberation generation difference, the G5 is 90nm and the Xeon is 65nm), double the cores cores and a neglectable 1% advantage in Clock. Yet the speed advanatge barely scratches 50% in i

      • Re: (Score:2)

        by dfghjk ( 711126 )
        "Actually the Desktop is the only place Power architecture isn't used on a big scale anymore. Just as x86 isn't used anywhere in any significant amounts but on the desktop."

        x86 is big in in servers and has a near total lock in notebooks as well. PowerPC and Power are NOT the same. PowerPC is strong in embedded and that's it. Power is strong in servers but that doesn't count.

        "The only reason that x86 is still around is, that it is the only architecture Microsoft ever got their operating systems working on

      • Re: (Score:2)

        by LWATCDR ( 28044 )
        Actually the majority of servers are X86 and or X86-64 these days and the X86 is used in some embedded applications. Heck some embedded applications still use DOS as the OS.
        No one with a brain would ever say that even the best X86 cpu is better than a Power5 or the latest UltraSparc. Just as nobody with a brain would use an X86 is a better solution for a low power embedded system than an PPC, MIPS, or ARM mpu.
        However the X86 does have some pluses. It is often just the right size. Many servers companies don'

      • Just as x86 isn't used anywhere in any significant amounts but on the desktop.

        I'd hardly call x86's server and embedded presence insignificant. It doesn't dominate quite as utterly as it does on the desktop, but it's certainly existing in other niches. I've seen x86 DVD players(Toshiba's initial Blueray player was a pretty bog-standard P4 running linux from a built in USB key.), set top boxes, phone systems, kiosks, ATMs, you name it.

    • Re: (Score:1)

      by jeffbax ( 905041 )
      I believe Freescale also will provide CPUs for Nintendo's Wii.

    • Re: (Score:2)

      by dfghjk ( 711126 )
      "The PowerPC platform still has a strong presence in the server room and is FAR from dying."

      No it doesn't. Power and PowerPC are not the same. PowerPC is strong in embedded but has little presence outside that.

    • Yes, PowerPC is strong in the server room. Too bad for Freescale that 99% of them are IBM chips [top500.org].

      Presumably Freescale still has a decent share of the embedded market, but their position in general computing can be summed up in 8 characters: MPC8641D. Their amazing high-performance dual-core fast-FSB low-wattage super-G4 has been "just around the corner" since mid-2004.

      If that chip and the 3GHz G5 had shipped on schedule, the results for http://www.google.com/search?q=boot-camp [google.com] would be a lot different.
    • Yeah, but Motorola and Freescale had the very annoying tendency of NEVER GETTING ANYTHING DONE ON TIME. They'd announce a new gee-whiz chip...and it took a lot longer to get to market, and at lower clock speeds than promised. Then it takes an eternity to scale up. Case in point, the 74xx lineup, otherwise known as the G4. Hell, even the latest incarnation, the 7448, was supposed to ramp up production by October of last year. Yeah, kinda took 'em six months longer than that to start trickling out of the fact
  • There will definitely need to be a few more players on the field to take advantage of the coming flood of end-users who just don't want to by spyware.

    • Re: (Score:3, Interesting)

      by ooze ( 307871 )
      I just hope this takeover won't hurt them in thier technology decisions. Because I want to see a Subnotebook with their MPC8641D their MRAM as a buffer and about 10-20GB Flash. Combined with an organic iode display or a high resolution monochrome titanium-oxide screen and a decent battery that would be the ultimate outdoor writing and coding machine. The only thing it won't be overly suited for is video and high end gaming, but still should be enough for most. A laptop with days of battery time ...

    • Re: (Score:1)

      by Ilgaz ( 86384 )
      I am sure my Quad G5 (It is 5x slower than Intel,hehe) has some evil DRM stuff embedded inside. My cell phone (which is not smart!) SonyEricsson K700 (likely MIPS) has DRM protection even for simple ringtones, themes.

      I mean DRM is what industry wants, when industry want something, the vendors implement it via hardware or software. The only "hope" for consumer is to stay away from DRM/TPM based stuff. Well, it doesn't happen :)

      Basic example: iPod has DRM yes? It runs on ARM Arch CPU, which is RISC based. S

    • Huh? (Score:1)

      by dammy ( 131759 )
      How would spyware install itself if I'm not running Windbloat? It's the OS that matters for spyware as I can run AROS or Linux on the box and still not have to worry.
  • I wonder what this will mean for the employees of Freescale. I work as a computer consultant for Freescale's Oak Hill facility in Austin... Good thing I have a contract ;-)

  • Possibly ungood (Score:5, Informative)

    by Anonymous Coward on Monday September 11, 2006 @09:29AM (#16080392)
    http://en.wikipedia.org/wiki/Leveraged_buyout [wikipedia.org]
    The Wiki article on leveraged buyouts is pretty neutral. You have to read between the lines.

    From the Wiki article: "Proponents of LBOs claimed that they caused companies to make more efficient use of their resources." That means that you don't want to be the victim of a leveraged buyout and have to defend yourself against it. If you haven't made efficient use of your resources (ie. your assets are worth more than your stock) you could become the victim of corporate raiders. http://en.wikipedia.org/wiki/Corporate_raid [wikipedia.org] They sell off your assets and your company ceases to exist.

    In the nastiest kind of leveraged buyout, the buyers essentially use the company's own money to buy it.

    Let's see if Freescale tries to defend itself with a poison pill. http://en.wikipedia.org/wiki/Poison_pill [wikipedia.org]

    Geez, this investment stuff is almost as much fun as reading Groklaw.
    • Following KKR's purchase of Nabisco private equity firms (what LBO firms call themselves) generally stopped doing hostile deals. There are a few out there that still try hostile deals, Steel Partners, Ichan & Co., etc, all relish a good boardroom fight, but most of the time management invites the LBO firms in these days. There are far fewer layoffs (typically the private equity firm is planning to IPO it back to the market in a few years).
  • Unless its AMD, I hope it doesn't go through.

    I like the freescale people we have and I like the direction its moving. Be a real shame to have to cut back to appease the new masters.

  • See also CNN Money article [cnn.com].

    Is this welcome by Freescale as an attempt to go private? Or, is this an attempt to forcibly take over the company by a different group of managers or (as a previous post questioned) corporate raiders?

    Going private isn't necessarily bad. That can have some advantages for the company. Especially if this is voluntary and would essentially leave day-to-day operations and management unchanged (assuming the groups are succesful). Board of directors might change dramatically, and some t

  • Freescale Semiconductor in Discussions

    AUSTIN, Texas, Sep 11, 2006 (BUSINESS WIRE) -- Freescale Semiconductor, Inc. (NYSE:FSL) (NYSE:FSL.B), a global leader in the design and manufacture of embedded semiconductors for wireless, networking, automotive, consumer and industrial markets, said today that it is in discussions with parties relating to a possible business transaction.
    There can be no assurances that any transaction will result from these discussions.
    To protect the interests of its stockholders,

  • There have been a lot of these lately. The first was really Avago being spun off Agilent last year (Agilent was spun off HP a few years ago - ironically, Agilent is really what HP used to be - test and measurement equipment). The next was NXP - the semiconductor part of Philips, this was announced just a few weeks ago. Now it may be happening to Freescale (which was spun off Motorola just a couple years ago). All of these were leveraged buyouts from consortiums of various funds.

    There are not many integrate

  • Didn't they abandon the PowerPC (G3 and G4) line of CPU's in favor of IBM's G5 chips before switching to Intel (at least in the desktop world)?

    -Scott

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