NXP Semi Is Buying Freescale For $11.8 Billion

On March 2nd, NXP Semiconductors (NASDAQ: NXPI) announced plans to acquire its competitor, Freescale Semiconductor (NYSE:FSL), in a deal valued at $11.8 billion in cash and stocks. The merge will propel NXP-Freescale into the top tier of semiconductor companies worldwide, in terms of both revenue and annual sales.

Both semiconductor companies create chips that are used in wireless infrastructure and computing, but Freescale has a strong foothold in automotive chips. As sensors, automatic braking technology, and cameras become more commonplace, even mandatory, in cars, NXP-Freescale is positioning itself to become a powerhouse in the automobile chip industry.

A statement released by NXP detailed that current Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the close of the transaction. Going forward, NXP predicts the joined companies will save $200 million in the first year, followed by “a clear path to $500 million of annual cost synergies.”

Richard Clemmer, CEO of NXP who will continue to be CEO of the merged company, said, “The combination of NXP and Freescale creates an industry powerhouse focused on the high growth opportunities in the Smarter World. We fully expect to continue to significantly out-grow the overall market, drive world-class profitability and generate even more cash, which taken together will maximize value for both Freescale and NXP shareholders.”

Analyst Christopher Rolland of FBR Capital reiterated a Buy rating on NXP Semi with a price target of $100 on March 2nd.Rolland believes the deal will be “highly profitable and positive” for the company by way of increasing earnings per share, enabling the company to benefit from economies of scale, and restructuring the debt. Rolland writes that the buyout will lead to NXP-Freescale being the “world’s largest automobile semiconductor company and the second largest microcontroller maker”

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