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Three teams of private equity firms were on Sunday night putting the final touches on bids for the semiconductor division of Philips Electronics, which could be worth more than $10bn in a sale.
According to people familiar with the situation, Netherlands-based Philips had set a deadline for the submission of final bids later this week, and would then proceed to determine whether to sell the unit.
Competing in the auction is one group composed of Bain Capital, Francisco Partners, and Apax Partners. A second consortium includes Kohlberg Kravis Roberts and Silver Lake Partners, which already joined forces to acquire the semiconductors unit of Agilent in 2004. A third group involves Blackstone, Permira and Texas Pacific Group, people familiar with the process said. They cautioned that while bids were due this week, the process was likely to drag on for some time before any decision would be made.
Even as interest rates are rising, and the cost of financing acquisitions with debt becomes more expensive, the largest buy-out funds continue to pursue large targets. A buy-out of Philips’ chip unit would represent the largest private equity deal in the technology industry after last year’s $11.3bn purchase of SunGard Data Systems by seven firms.
The uncertainty over the future of Philips’ semiconductor division comes amid more dealmaking in the chip business. Over the weekend, Advanced Micro Devices was close to an agreement to buy ATI Technologies of Canada for about $5.5bn, people familiar with the matter said.
Philips announced its intention to sell a majority of its chip division in June saying at the time that it had accelerated the process of deciding the future of the unit. It is one of five business units the Dutch technology company operates, and generates about one-sixth of total sales.
It said it would reduce its position in the semiconductor unit to a minority either via a flotation or sale to financial buyers, by the end of the year.
It did not rule out eventually exiting semiconductor manufacturing entirely. The industry has proven a volatile drag on Philips earnings, as the company shifts from high volume electronics to a healthcare and lifestyle group in which manufacturing is largely out-sourced.
Philips said on Sunday it had “no reason to comment” on the interest from private equity because “all options remain open”.
The legal separation of that business will be completed by the end of the third quarter. It announced that process in December in order to increase shareholder value. Philips has been under pressure for some time to dismantle its conglomerate structure in order to realise value.