Private Equity Firms Enter Chip Sector

Jul.24.06 | About: Koninklijke Philips (PHG)

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Bids for Chip Unit Of Philips Reach The Final Stage

  • Summary: Three groups of private equity firms are bidding over 8 billin euros ($10.2 billion) for Philips's semiconductor division, which employs over 36,000 people and produces chips for consumer goods including TVs, cars, telephones, washing machines and radios. Philips put the unit up for sale or a potential IPO last year. The deal is unusual in that private equity firms don't usually bet on highly cyclical businesses like semiconductor manufacturing.
  • Comment on related stocks/ETFs: Philips has an ADR that trades in the US (NYSE:PHG). Private equity firms seem to be doing extremely well; just look at the Hertz numbers. But the deals are getting larger and larger, and if the market goes into a prolonged downturn, the private equity firms will be left holding a lot of, well, private equity. In the meantime, this sort of deal helps put a floor beneath publicly-traded equity prices.