Freescale Semiconductor

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Is KKR about to trigger a clash of the barbarians? A Blackstone consortium was poised to agree a $16bn buy out of Freescale Semiconductor when its aggressive private equity rival lobbed in a late bid. That sets up a potentially fascinating battle.

While the approach might yet come to nothing, KKR and partners Silver Lake, Bain, and Apax now have a foot in the door. On top of KKR’s legendary aggression and huge combined financial firepower, they also have a secret weapon.

The private equity houses have already snapped up the chip business of Philips Electronics. That makes them, in effect, strategic bidders. They have the same potential to gear up the business as the Blackstone consortium but they should also be able to drive out costs if they can combine their existing chip business with Freescale.

As with any combination there would be big integration risks. But the two would fit together well. They are complementary in their geographic focus and both have strong communications and automotive businesses. They have pursued a similar strategy in reducing their exposure to capital intensive chip manufacturing. And there would probably be some assets that could be sold to help pay down debt.

KKR has not been shy to contest deals aggressively in the past – remember RJR Nabisco. If it wants, it should be able to claw back any head-start Blackstone has in building relations with Freescale management and in due diligence.

It remains early for Freescale shareholders to get overexcited. After all, Blackstone is already offering a 30 per cent premium. The KKR consortium could yet walk away or might simply try to muscle its way into the deal as a Blackstone partner.

But having another bidder could drive the price higher. And if it does turn into a bidding war, it would certainly fuel the fear in some quarters that the public-to-private boom is getting overheated.

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