LONDON – Texas Instruments' proposed acquisition of National Semiconductor Corp. for $6.5 billion and at an 80 percent premium from where the stock was trading, must be setting some minds racing.
To offer to pay such a premium surely suggests that another party was nibbling at National Semiconductor and the move seems likely to reset the market's perception of the value of analog semiconductor activity. Meanwhile there are many that believe further consolidation in the semiconductor industry is overdue and that TI may have broken a long-jam that was holding back pent-up appetite.
NXP Semiconductors BV, the European chipmaker spun off from Koninklijke Philips Electronics NV by a private equity buy out in 2006, is one company that could now be caught up in the mix of interested consolidators, interested divestors and a revaluation of analog and mixed-signal activity.
In August 2006 private equity company Kohlberg Kravis Roberts & Co. (KKR) teamed up with Silver Lake Partners, Bain Capital, Apax Partners Worldwide LLP and AlpInvest Partners NV to buy an 80 percent stake in NXP for 6.4 billion euros (about $8 billion). The consortium loaded debt onto its acquisition confident that it could service that debt and still make money by some combination of asset movement and the increasing significance of semiconductors.
However, that was before the 2008-2009 global economic melt-down. In March 2009 KKR Private Equity Investors LP, the company set up to make equity investments identified by Kohlberg Kravis Roberts & Co., announced write downs on almost all its investments and reset the value of its holding in NXP at just 10 cents on the dollar purchase price.
Meanwhile, and latterly under the stewardship of CEO Rick Clemmer, NXP has been substantially transformed by a series of deals, from a broad line company with an emphasis on consumer electronics into high-performance mixed-signal specialist.
One question is whether European governments will provide additional subsidies to their semiconductor industry in the wake of heightened competition from TI and Broadcom? The semiconductor market is growing primarily in America and Asia, so I would not expect anyone rational would to buy a firm such as NXP. They would most likely buy a firm based in the U.S. or Asia instead if they were actively looking.
The TI move greatly consolidates their position in the analog marketplace. They must see tremendous growth in this space in order to have paid so much. I wonder what the other players in the analog/mixed signal marketplace will do?
This has really strengthened TI's position in the analog space, coupled with their 300mm cost structure, it's game, set and match for TI; a real problem for NXP (who set analog as one of their key survival platforms) and a big worry for Infineon and ST ... in short all of Europe's big three (well, one big and two mediun-sized) chip firms. Their saving grace is Smart Power and dumb analog where TI doesn't yet play but the 'bit in the middle' ... but I doubt that's enought to stop TI eating their lunch. This is eaactly the sort of problem in waiting we've been warning about for the last several years.