KKR, Bain's NXP Semiconductors Raises $476 Million After Reducing IPO 33%

NXP Semiconductors NV, the Dutch chipmaker owned by KKR & Co. and Bain Capital LLC, raised $476 million after cutting the price of its U.S. initial public offering by as much as 33 percent.

NXP, acquired by KKR, Bain and three other private equity firms in a $9.4 billion leveraged buyout in 2006, sold 34 million shares at $14 each after offering them for $18 to $21, according to Bloomberg data and a Securities and Exchange Commission filing. The Eindhoven, Netherlands-based company will use proceeds to repay debt.

The producer of semiconductors used in everything from radars to hearing aids and pachinko machines has reported combined losses of $5.5 billion since the takeover. KKR, the New York buyout firm founded by billionaire investors Henry Kravis and George Roberts, said in May its stake in NXP was worth 40 cents on the dollar.

Credit Suisse Group AG of Zurich and Goldman Sachs Group Inc. and Morgan Stanley in New York led the offering. NXP will start trading tomorrow on the Nasdaq Stock Market under the ticker NXPI.

NXP, which sold a 14 percent stake, was the semiconductor unit of Royal Philips Electronics NV. The world’s biggest lighting company sold an 80.1 percent stake to KKR, Bain, Silver Lake in Menlo Park, California, Apax Partners LLP of London and Amsterdam-based AlpInvest Partners NV in September 2006.

Credit Markets

The firms paid 3.45 billion euros ($4.37 billion), which valued the company at about $5.46 billion at the time of the takeover, according to NXP’s website and Bloomberg data.

The acquisition, which included assumed debt of 4 billion euros, was the biggest LBO in the semiconductor industry’s history at the time and completed less than a year before credit markets seized up in August 2007.

KKR, founded in 1976, and Boston-based Bain, the private- equity firm started by former U.S. presidential candidate and Massachusetts Governor Mitt Romney in 1984, together oversee $122 billion and have led some of the largest buyouts.

Private equity firms take controlling stakes in companies and use borrowed money to finance most of the acquisition. They aim to make money for their investors usually by replacing management, selling off unprofitable assets, extracting dividends and then cashing out at a higher price.

The firms earn money for themselves through annual fees, usually about 2 percent of assets under management, and by taking a share of profits, about 20 percent.

Lehman’s Collapse

Private equity funds spent $2 trillion from 2003 to 2007 on leveraged buyouts, before the credit crisis and the collapse of New York-based Lehman Brothers Holdings Inc. in 2008 brought deal-making to a halt. LBO firms completed $12.8 billion in U.S. buyouts last year, the smallest amount since at least 1995, according to data compiled by Standard & Poor’s.

They are now turning to initial offerings to pare debt and reduce their stakes, a year after buyout firms returned less money to their clients than any time in the past decade, data compiled by London-based Preqin Ltd. show. Private equity-backed companies accounted for at least 50 percent of the IPOs filed with the SEC last quarter, data compiled by Bloomberg showed.

Relative Value

KKR and Bain were asking IPO buyers to invest in a company that has more debt relative to its cash flow than any of its rivals. NXP’s debt burden after the IPO would exceed its estimated 2010 earnings before interest, taxes, depreciation and amortization by more than seven times, data compiled by Bloomberg and London-based Independent International Investment Research Plc before the final pricing showed.

That’s greater than all the publicly traded companies that NXP lists in its SEC filings as direct competitors, none of which have a debt-to-Ebitda ratio of more than 3.2 times.

Texas Instruments Inc. of Dallas, the biggest maker of analog chips that go into everything from barcode scanners to aircraft flight-control systems, has no debt, data compiled by Bloomberg show. National Semiconductor Corp. of Santa Clara, California, STMicroelectronics NV in Geneva and Phoenix-based ON Semiconductor Corp. all have ratios of less than 2.1 times.

NXP was one of seven companies scheduled to price U.S. IPOs this week after the S&P 500 posted its biggest monthly gain in a year in July. IntraLinks Holdings Inc., the New York-based provider of document exchange services for the loan market that was acquired by TA Associates Inc. in a 2007 LBO, will seek to raise as much as $176 million today to repay debt.

To contact the reporter on this story: Kristen Scholer in New York at kscholer@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net.

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