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Agilent announced on Monday the $2.66bn sale of its semiconductor unit as part of a broader restructuring of the technology testing and measurement equipment business.
The sale, to Silver Lake Partners and Kohlberg Kravis Roberts, is the second-biggest buy-out of a technology company, following the $11.3bn purchase of Sungard by the same buyers and other private equity firms earlier this year.
It marks the growing interest of private equity firms in an industry that most once shied away from, given the high risk in many new technologies and the often heavy dependence on a handful of key engineering personnel.
Agilent, a company which was spun off from Hewlett-Packard, has been under pressure to boost its share price, and has been studying a number of options, including selling this and other divisions.
It said on Monday it would also sell its stake in Lumileds Lighting, a joint venture with Dutch group Philips Electronics, and would spin off its memory test unit. The proceeds will go towards a $4bn stock repurchase programme.
The broader restructuring announced will see the loss of 1,300 jobs, or about 4.6 per cent of the company’s workforce.
Agilent shares jumped more than 13 per cent at the start of trading on Monday, rising to $29.96.
Agilent's semiconductor business, which makes chips for a wide range of products from mobile phones to networking equipment and printers, is currently generating revenues of about $1.8bn annually, according to one person familiar with its business, and is set to be the world's biggest private semiconductor company. The unit has been plagued by volatile earnings, however.
In the short term, the sale is likely to lead to some restructuring of the chip business as its new owners seek to repair its profit margins and put it on a more stable path. However, the aim will be to invest heavily in research and development in order to turn it back into a growth business, according to the person familiar with the deal. Of 6,600 employees at the chip business, about 1,300 are involved in research and development, this person said.
Agilent's semiconductor division largely outsources the production of its chips to manufacturers in Asia, a practice which reduces its need for capital and makes it more suitable for purchase by private equity investors.
The willingness of private equity buyers to invest in technology ventures like this signals a new phase of the buy-out business, as investors look for undervalued operations with solid core technology and a position in growth markets.
While KKR and other well-known East Coast buy-out firms are relatively new to the technology world, Silver Lake, which was set up in the late 1990s in Silicon Valley, has now been involved in the four biggest deals seen in the industry. The others include the purchase of UGS from EDS, the tech services company, and Seagate, the biggest maker of computer disk drives.
Agilent said on Monday its quarterly profits rose 4 per cent to $104m in spite of a 10 per cent fall in revenues.