Freescale Buyout Leverages $17.6 Bln Payday

A private equity team has leveraged a buyout of chipmaker Freescale - but is the company worth the massive $17.6 billion price tag?

Last week brougt news of what may turn out to be one of the biggest leveraged buyouts in the history of the technology industry: a private equity group led by The Blackstone Group has negotiated a deal to buy U.S. chipmaker Freescale for some $17.6 billion&mash;assuming Freescale can’t line up a more lucrative offer in the next 50 days.

Freescale spun off from Motorola in 2004, and is the world largest supplier of chips and microcontrollers for the automobile industry, and major supplier of processors and components used in mobile phones, competing with companies like Qualcomm and Texas Instruments. Key to Freescale’s current high-profile status is the company’s commercial development of MRAM, or magnetoresistive random access memory, announced last July. MRAM is very much like the everyday dynamic RAM used in computers, notebooks, phones, and electronic devices today, except for one thing: it can retain its contents indefinitely without power. In February, Freescale joined Power.org to work with IBM to extend the Power Architecture processor line into a wider range of consumer devices.

Freescale has 50 days to accept a more lucrative offer from other potential suitors, which are rumored to include Kohlberg Kravis and Roberts, Silver Lake Partners, and Texas Pacific Group. If Freescale accepts another buyout offer, it will have to pay Blackstong from $150 to $300 million in termination fees, depending on the timing. Blackstone’s partners include The Carlyle Group, Permira Funds, and Texas Pacific Group.