NXP nears deal for Freescale Semiconductor; US$40 billion merger will reshape semiconductor industry

NEW YORK (Reuters) - NXP Semiconductors NV is close to a deal to acquire smaller peer Freescale Semiconductor Ltd in a US$40 billion (S$54.59 billion) cash and stock merger that will reshape the semiconductor industry, according to two people familiar with the matter.

Such a deal would represent the clearest sign yet that semiconductor companies are regaining the confidence required to pursue big mergers at a time when their major clients, such as mobile phone manufacturers, seek to consolidate suppliers.

Freescale has little exposure to most segments of the mobile and consumer markets. By acquiring it, however, NXP would be expanding in the auto and industrial markets and would be diversifying its business further.

NXP is finalising a deal to pay a little over Freescale's US$11 billion current market capitalisation, the people said. Including debt, the combined company will have a value of around US$40 billion, the people added.

A deal could come as early as Monday, although the negotiations could still fall apart, the people said.

The sources asked not to be identified because the negotiations are confidential. NXP and Freescale did not immediately respond to requests for comment.

Based in Eindhoven, the Netherlands, NXP has operations in more than 25 countries and reported revenue of US$5.7 billion in 2014. Austin-based Freescale also has operations in more than 25 countries and had net sales of US$4.6 billion in 2014.

NXP's portable device and computer business is growing quickly, with its revenue up 46 per cent year on year to US$712 million in 2014. But its bigger automotive and chip identification businesses, which together account for a little less than half its revenue, grew by only 12 to 13 per cent.

Freescale reported adjusted earnings before interest, tax, depreciation and amortisation of US$1.1 billion in 2014, up from US$893 million the year before. The company has said it expects its sales in the automotive and wireless infrastructure markets to increase further.

Freescale went public in 2011 after it was taken private in 2006 for US$17.6 billion in a leveraged buyout by a group of private equity firms that included Blackstone Group, Carlyle Group, Permira Advisers and TPG Capital. The buyout firms still own 64 per cent of Freescale.