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Philips flogs off most of its microchip unit
Cashing in its chips for $4.35bn...

By Reuters

Published: Friday 04 August 2006

Dutch electronics giant Royal Philips Electronics said on Thursday it is selling an 80.1 per cent stake in its microchip unit to several private equity firms for $4.35bn.

AlpInvest, Kohlberg Kravis Roberts and Silver Lake Partners will buy the stake in the unit, which Philips has been trying to unload as it shifts its focus from high-volume electronics to health and lifestyle-related products.

The deal values the unit at €8.3bn, which includes a €3.4bn purchasing price for the stake, €4bn in debt and about €900m for the remaining Philips stake, Philips said.

With $3bn in first-half sales, Philips ranked as the world's number eleven chip supplier by sales at the end of June, according to market research company IC Insights.

The company mostly makes chips for consumer electronics, cars and mobile phones, and competes with the likes of Freescale Semiconductor of the US and STMicroelectronics, Europe's largest chip company.

Philips chief executive Gerard Kleisterlee said in a statement: "As a standalone company, the semiconductors business will have every opportunity to realise its full potential."

Kohlberg Kravis Roberts, one of the largest private equity firms, is currently raising what is expected to be a roughly $15bn buyout fund.

Silver Lake Partners is the largest technology-focused private equity firm. The two firms teamed up with five other buyout firms in the $11.3bn purchase of SunGard Data Systems in March 2005, at the time the second-largest leveraged buyout ever.

AlpInvest Partners is a European buyout firm and one of the investors in the €7.6bn buyout of Dutch information provider VNU.

Fuelled by cheap debt, a steady economy and huge cash piles from investors, private equity firms are enjoying their most profitable period in more than five years. Private equity mergers and acquisitions have gone from around five per cent of global mergers and acquisitions to around 20 per cent in that same period.

Buyout firms finance their deals with a small portion of their own cash and borrow the rest. After holding onto companies for, on average, three to five years, they sell them, keeping a slice of the profit and giving the rest back to their institutional investors.