Freescale Rises After IPO Priced at Bottom of Reduced Range

May 26, 2011, 12:46 PM EDT By Lee Spears, Jason Kelly and Ian King

(Updates with CEO’s comment in third paragraph.)

May 26 (Bloomberg) -- Freescale Semiconductor Holdings rose on its first trading day as investors bet demand for automotive chips will help the company cut the debt burden that led underwriters to reduce its initial share-sale price.

Shares of the Austin, Texas-based company rose 95 cents, or 5.3 percent, to $18.95 at 12:17 p.m. on the New York Stock Exchange, trading under the ticker FSL. Freescale raised $783 million in its initial public offering, 25 percent less than it originally sought.

“We think all investors are ultimately going to do well,” Chief Executive Officer Richard Beyer said in a telephone interview today. The company was forced to cut its offer price because “the external market conditions are sketchy,” he said. “Would we have liked to have gone out a higher price? Yes.”

Freescale filed to sell shares to the public in February, saying it would use the proceeds to help reduce debt, which is about $7.5 billion. The company, the largest supplier of chips to the U.S. automobile industry, borrowed billions as it was taken private by Blackstone Group LP, TPG Capital, Carlyle Group and Permira Advisers LLP in a $17.6 billion transaction in 2006.

Freescale needs annual sales of about $4 billion to break even, Beyer said. The company could suffer a decline in revenue from the current level of about $4.8 billion and still be able to manage debt and invest in its business, he said.

Automotive Demand

Unlike makers of personal computer and mobile phone chips, Freescale is not experiencing a drop in demand for its products, said Beyer. Automotive demand remains strong, he said.

Freescale sold 43.5 million shares at $18 each in the IPO, according to a company statement. The company lowered the range yesterday to $18 to $20 from $22 to $24. The offering price reflects a 50 percent discount to the average of $36 that investors paid for the company, according to a regulatory filing.

“The balance sheet is a large issue,” said Cody Acree, a semiconductor analyst at Williams Financial in Dallas. “There are too many other places to put your money that don’t have this kind of issue.”

Freescale has been one of the worst performers among companies taken private during the buyout boom, with a net loss of $1.05 billion in 2010. Other private equity-backed IPOs this year have benefited their investors.

Financial Crisis

The initial share sale of Kinder Morgan Inc. raised $3.3 billion in February, valuing Carlyle Group’s stake at more than twice what it paid. Blackstone, Carlyle, KKR & Co. and Thomas H. Lee Partners LP similarly used the January IPO of Nielsen Holdings NV, to trim their stakes and reap profits. That offering raised $1.9 billion.

The global financial crisis hit Freescale less than two years after its owners closed their deal. The firms brought in Beyer, the former CEO of rival Intersil Corp., to close factories and design facilities, cut jobs, and get out of less profitable businesses. As markets recovered, Freescale also reduced borrowings by more than $2 billion after negotiating with bondholders.

Deutsche Bank AG, Citigroup Inc., Barclays Plc, Credit Suisse Group AG and JPMorgan Chase & Co. managed the offering.

Spirit Airlines Inc., the U.S. discount carrier that charges for carry-on items, raised $187.2 million in its IPO yesterday, 42 percent less than it originally planned. Spirit fell 50 cents, or 4.2 percent, to $11.50 at 12:16 p.m. on the Nasdaq Stock Market, trading under the ticker SAVE.

Reduced Offerings

Spirit and Freescale were forced to reduce their offerings even after Internet companies LinkedIn Corp. and Yandex NV expanded the sizes of their IPOs this month. LinkedIn shares more than doubled on its first day of trading, and Yandex surged 55 percent in its market debut.

Spirit, based in Miramar, Florida, sold 15.6 million shares at $12 each, it said in a statement. The carrier initially planned to raise as much as $320 million, according to a regulatory filing, before shrinking its offering from 20 million shares and lowering the range to $12 to $13 from a band of $14 to $16.

The carrier, which flies mostly between Florida and the Caribbean, had said it would use the funds for future plane purchases and to pay off debt. It is going public as jet fuel hovers near a three-year high, crimping industry profits and forcing carriers to raise fares. Gulfstream International Group Inc. was the last U.S. passenger airline to hold an IPO, selling shares in 2007. It filed for bankruptcy last year.

Private Equity

Private equity firm Indigo Partners LLC bought a majority stake in Spirit in 2006, and also invests in similar low-fare carriers outside the U.S., including Mexico’s Volaris. Oaktree Capital Management LP is the second-biggest investor.

Citigroup and Morgan Stanley led the Spirit IPO.

In other IPO news, Delphi Automotive Plc, the former parts unit of General Motors Co., registered for an initial public offering of $100 million. That amount is a placeholder to calculate filing fees, and the sale’s final size may vary, Troy, Michigan-based Delphi said yesterday in a regulatory filing.

The IPO may raise more than $1 billion, a person with knowledge of the plans said last week.

Delphi, once the largest U.S. auto-parts maker, exited bankruptcy restructuring in October 2009 with four classes of shares. Lenders including private equity firms Elliott Management Corp. and Silver Point Capital LP bought most of the original Delphi and still hold a controlling interest after Delphi bought back stakes from General Motors and the Pension Benefit Guaranty Corp. in March.

The offering’s proceeds will be used for general purposes, retiring debt and capital spending, Delphi said.

Goldman Sachs Group Inc. and JPMorgan are managing the deal.

--With assistance by Kevin Orland in Chicago. Editors: Lisa Rapaport, Tom Giles

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net Tom Giles at tgiles5@bloomberg.net

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