Amit Chokshi

The Semiconductor Industry Desperately Needs to Go Private

It's rare for a lot of companies to pay out massive cash dividends. The only one I know that really did an excellent job of it is FNF, they paid out $10 per share a year or so ago, and the stock adjusted ex dividend and then continued to ramp back up. If the right shareholders pressured the semis to do so, I'm sure they would have but I think most public shareholders are fine with status quo.

Also, how easy is it to reduce capex at FSL or other semis? Aren't these facilities multibillion dollar plants, I'm sure the maintenance capex is very high? Sure they don't need to build new plants but most semis don't do that until the top of chip cycles either way so I'm assuming (and maybe wrong) that a lot of that capex can't be shut off.

I think, having good familiarity with the LBO world from a prior life, that buying a cyclical business like semis is pretty risky for an LBO firm. You have massive fixed costs so when the cycle turns your cash flow will take a big hit, not to mention the capital intensive nature of the business. Oh well, these guys have billions so I'm pretty sure things will work out. As most LBO deals go, the PE firms are going to pay themselves an M&A fee up front which will prob be 0.5% to 1.0% of the deal so they're on their way to making money already.

The Semiconductor Industry Desperately Needs to Go Private

Why not just have the semis pay out a massive cash dividend then or do their own leveraged recap rather than let a PE firm execute a buyout? ACS did that, they went to the leveraged loan market to do a big share repurchase.

I don't follow Freescale but I'd expect it has a good amount of capex and is highly cyclical, I have no idea why the PE firms would go after that company, I'm suspecting it's mostly because they actually believe in the "secular growth" in portable media and wireless consumer devices that FSL has a strong niche in. Plus they have more money than they know what to do with. A lot of LBO firms blew up from the 98-00 telecom deals they did, the same will probably happen again.