NEW YORK (TheStreet) - Shares of Freescale Semiconductor (FSL ) are up 8.81% to $39.29 in pre-market trading today after NXP Semiconductors (NXPI ) announced that they have entered into a definitive agreement under which NXP will merge with the Bermuda-based peer in a transaction which values the combined enterprise at just over $40 billion.
The merger creates a "high performance mixed signal semiconductor industry leader, with combined revenue of greater than $10 billion, " Freescale said.
Freescale is looking to become the market leader in automotive semiconductor solutions and the market leader in general purpose microcontroller (MCU) products. The combined company will capitalize on the "growing opportunities created by the accelerating demand for security, connectivity and processing, " Freescale added.
Exclusive Report: Jim Cramer's Best Stocks for 2015
"The combination of NXP and Freescale creates an industry powerhouse focused on the high growth opportunities in the Smarter World. We fully expect to continue to significantly out-grow the overall market, drive world-class profitability and generate even more cash, which taken together will maximize value for both Freescale and NXP shareholders, " NXP CEO Richard Clemmer said.
Clemmer will continue to be the president and CEO of the merged company.
The transaction is expected to be accretive to NXP non-GAAP earnings and non-GAAP free cash flow. NXP anticipates achieving cost savings of $200 million in the first full year after closing the transaction, with a clear path to $500 million of annual cost synergies.
Under the terms of the agreement, Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the close of the transaction. The purchase price implies a total equity value for Freescale of approximately $11.8 billion, based on NXP's closing stock price as of February 27, and a total enterprise value of approximately $16.7 billion including Freescale's net debt.
The transaction is expected to close in the second half of 2015. NXP intends to fund the transaction with $1 billion of cash from its balance sheet, $1 billion of new debt and approximately 115 million NXP ordinary shares. Post transaction, Freescale shareholders will own approximately 32% of the combined company.
NXP Semiconductors stock is up 14.09% to $96.86 in pre-market trading.
Separately, TheStreet Ratings team rates FREESCALE SEMICONDUCTOR LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate FREESCALE SEMICONDUCTOR LTD (FSL) a HOLD. The primary factors that have impacted our rating are mixed, some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and revenue growth. However, as a counter to these strengths, we find that the company's profit margins have been poor overall."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- FREESCALE SEMICONDUCTOR LTD reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, FREESCALE SEMICONDUCTOR LTD turned its bottom line around by earning $0.80 versus -$0.81 in the prior year. This year, the market expects an improvement in earnings ($2.17 versus $0.80).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 153.4% when compared to the same quarter one year prior, rising from -$118.00 million to $63.00 million.
- The gross profit margin for FREESCALE SEMICONDUCTOR LTD is rather high; currently it is at 51.22%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, FSL's net profit margin of 5.71% significantly trails the industry average.
- Powered by its strong earnings growth of 143.47% and other important driving factors, this stock has surged by 57.41% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
- You can view the full analysis from the report here: