Freescale to merge with Blackstone for $17.6 billion

An American semiconductor manufacturer, Freescale Semiconductor Inc. declared on Friday that it had agreed to be bought for $17.6 billion, or $40 a share in cash, to a private equity syndicate led by Blackstone Group.

Freescale released a statement after the market closed in New York, stating, it had entered into a definitive deal to be acquired by a consortium that included Blackstone, the Carlyle Group, Permira Funds and Texas Pacific Group.

But the chip maker still has reserved the right to solicit a higher offer from other suitors during the next 50 days. And, the right comes as an opportunity for a rival consortium led by Kohlberg Kravis Roberts to make a higher bid or drop out. Whoever wins the bid, the sale would be the biggest ever leveraged buyout of any technology company.

Moreover, under the deal Freescale may at any time, subject to the terms of the merger agreement or respond to unsolicited proposals. If the company accepts a superior proposal, a break-up fee would be payable by the company. There can be no assurance of any alternative proposal. The company would pay a $300 million fee if it accepts another offer.

The technology company had spun-off from Motorola, another U.S. manufacturer of wireless communications, electronic systems, and semiconductors, in July 2004. Austin, Texas-based Freescale generated around $5.8 billion of sales last year and employs 24,000 workers worldwide, including 5,400 in Austin. The company designs and manufactures embedded semiconductors for the automotive, consumer, industrial, networking and wireless markets in more than 30 countries, and its customers include Motorola, Sony Corp., Whirlpool Corp., General Motors Corp. and Ford Motor Co.

Freescale said its board had unanimously given its consent for the proposed acquisition by the group, but declined to comment further. Company spokesman Tim Doke informed that the merger agreement will be filed with the Securities and Exchange Commission on Monday. Until then, he said the company could not comment on the issue.

Blackstone's group may face challenge by New York-based KKR, Menlo Park, California-based Silver Lake Partners, Boston-based Bain Capital and London-based Apax Partners Worldwide LP for the bid.

The buyout announcement comes days after Freescale acknowledged it was in talks for a possible "business transaction." And, the shares of the company had jumped more than 20% on Monday, when the company first confirmed a possible deal.

Freescale shares surged 5.8% to $39.44 in after-hours trading after closing down 41 cents, or 1.1%, at $37.16 on the New York Stock Exchange on Friday. The deal price of $40 a share signifies a premium of about 7.6% over Freescale’s Friday closing share price.