Freescale's IPO: Riding the Semiconductor Bull Market?

Includes: BX, FSL
by: IPOdesktop

Based in Austin, Texas, Blackstone’s (NYSE:BX) Freescale Semiconductor (NYSE:FSL) leveraged buyout filed Friday, February 11, 2011 for a $1.15 billion IPO. The lead underwriters are Citi (NYSE:C), Deutsche (NYSE:DB), Barclays Capital (NYSE:BCS), Credit Suisse (NYSE:CS) and JP Morgan (NYSE:JPM).

FSL is timing its IPO to try and take advantage of the semiconductor bull market of the past six months.

For example, on August 5, 2010 KKR's leveraged buyout NXP Semiconductors (NASDAQ:NXPI) IPO’d below range at $14 with a negative net worth. As of February 14 NXPI is up 82% to $25.44.

In the past six months stock prices of FSL’s competitors also increased. Infineon (INFFY) rose 86% to $11.06; STMicroelectronics (NYSE:STM) climbed 59% to $11.91; Texas Instruments (NYSE:TXN) shot up 47% to $35; Analog Devices (NASDAQ:ADI) also rose 46% to $41; and Intel (NASDAQ:INTC) was up 12.6% to $21.57

BUSINESS -- FSL is the global leader in embedded processing semiconductors and solutions. In 2010, FSL derived 80% of net sales from products where it held the #1 or #2 market positions and had over 30% of the embedded processor market. Embedded processor products include microcontrollers, single- and multi-core microprocessors, applications processors and digital signal processors. FSL serves 18,000 customers.

FSL Financials -- For the year ended December 31, 2010 FSL’s revenue was up 27% to $4.45 billion, gross margin increased to 37% from 27% and FSL incurred a loss of $1.05 billion, including $600 million in interest charges and $400 million in losses on extinguishment or modification of long-term debt.

IPO proceeds could reduce interest charges by as much as $100 million, but that would still leave FSL with a crippled income statement burdened with $500 million of interest charges.

As of December 31, 2010 FSL's negative book value of $4.9 billion supported $7.6 billion of debt.

PRIVATE EQUITY -- 100% owned pre-IPO by Blackstone, Carlyle, Permira and the TPG Funds.

NO DIVIDENDS -- FSL does “not intend to pay cash dividends on our common shares for the foreseeable future.”

-- Nearly 11,500 issued and pending patents.

BACKLOG -- FSL’s backlog was $1.1 billion at December 31, 2010 compared to $1.0 billion at December 31, 2009. Only orders expected to be fulfilled during the next 13 weeks are reported. In the semiconductor business, most of the order backlog is cancelable.

USE OF PROCEEDS -- Mostly to repay debt.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.