Woori BMO Group Says KKR & Bain Capital Sell NXP Shares In IPO At 46% Discount To Buyout

Press Release

7 August, 2010 /Woori BMO Group/ Analysts at the prestigious wealth management firm Woori BMO Group have today said that KKR & Co. and Bain Capital LLC have sold NXP Semiconductors NV shares in an initial public offering of $476 million for 46 per cent less than they had offered to gain ownership of the business at the height of the credit-market bubble.

“NXP which was purchased in a $9.4 billion leveraged buyout by KKR, Bain, and three other private equity companies, yesterday sold 34 million shares at $14 apiece,” said Woori BMO Group’s Director of Institutional Equity, Andrew Williams. 

“The company pursued $18 to $21 per share at the IPO after paying around $26.07 in 2006 for Royal Philips Electronics NV’s of Eindhoven, Netherlands business. The stock today was static at $14 in trading on the Nasdaq Stock Exchange,” Andrew added.

Buyout firms are selling some of their holdings at a reduction three years after deficit-fuelled deals soared even as financial markets started to freeze. Since the acquisition, NXP, which manufactures semiconductors used in everything from radars to hearing aids and pachinko machines, posted total losses of $5.5 billion. KKR, the leveraged buyout firm that was created by billionaire investors Henry Kravis and George Roberts, said its NXP interest was worth 40 cents on the dollar in May.

“This is a terrible investment,” said Michael Yoshikami, who oversees over $1 billion as the chief investment strategist at YCMNet Advisors in Walnut Creek, California. “We acquired at the highest. The investors of private equity are seeking to cut their losses’.

The transaction was led by Credit Suisse Group AG in Zurich and Goldman Sachs Group Inc. and Morgan Stanley in New York, while NXP offered legal advice to Simpson Thacher & Bartlett LLP in London.

“Philips’ semiconductor subsidiary was NXP, which gave a 14 per cent interest. In September 2006, KKR, Bain, Silver Lake in Menlo Park, California, Apax Partners LLP of London, and Amsterdam-based AlpInvest Partners NV acquired an 80.1 per cent stake in the world’s largest lighting business.

According to data collected by Woori BMO Group, the companies paid $4.37 billion when the company was valued at around $5.46 billion at the time of the takeover.

“The takeover, which involved an estimated €4 billion of debt, was the biggest LBO in the history of the semiconductor industry at the time and closed less than a year before the credit markets seized in August 2007,” said Thomas Johnson, Woori BMO Group’s Executive Vice President.  

19.9 per cent of NXP, which declared a $161 million shortfall in 2009, its third year of losses since the LBO.

As of the end of 2009, NXP had a gross debt of $5.28 billion, according to the prospectus. According to Trace, the Financial Industry Regulatory Authority’s bond-price information program, the company’s 9.5 per cent bills due in October 2015 increased 0.5 cents to 99.5 cents on the dollar today.

KKR, the New York-based firm founded in 1976 and Boston-based Bain, established in 1984 by former U.S. presidential nominee and Massachusetts Governor Mitt Romney, currently controls $122 billion and has led some of the biggest acquisitions.

Private equity companies assume ownership of company interests and use borrowing capital to fund the bulk of acquisitions. They generally seek to make profits for their stakeholders by changing managers, selling off unprofitable assets, collecting dividends, and then cashing them out at a higher price.

Companies raise income themselves by annual payments, typically about 2% of funds under management, and around 20% through taking a percentage of profits.