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How Do NXP’s Cash and Debt Look after the Merger with Freescale?

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NXP’s financial position

In the previous part of this series, we saw that NXP Semiconductors (NXPI) is rumored to offload its standard products division to raise $2 billion. If this rumor is true, the company may use the proceeds to repay some portion of its $9 billion debt. The company’s debt burden rose after it raised new debt to fund its $12 billion acquisition of Freescale. It also took on Freescale’s debt burden.

Let’s look at NXP’s financial position post-merger.

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Cash position

In fiscal 1Q16, the combined company generated $414 million in cash from operating activities and spent $88 million on capital expenditure. The company used $200 million from its $326 million free cash flow to repay debt. It spent another $298 million to buy back 4.1 million shares, of which it took $171 million from its cash reserves.

Debt position

As of April 3, 2016, NXP’s cash reserves stood at $1.5 billion and its long-term debt stood at $9 billion, which is lower than the $9.6 billion debt that appeared immediately after the Freescale merger closed.

Before the merger, NXP had long-term debt of $4 billion. It raised $1 billion in new debt to fund the acquisition and added Freescale’s debt of about $5 billion to its balance sheet. NXP also issued about 115 million shares to fund the acquisition.

The company’s net debt to adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stands at 3.5x. It aims to reduce its net debt to adjusted EBITDA ratio to 2x in a year.

ON Semiconductor (ON) and Microchip (MCHP) have leverages of more than 3x after their acquisitions of Fairchild (FCS) and Atmel, respectively.

The iShares Russell 1000 ETF (IWB) has holdings in large-cap US equities across various sectors, including technology. It has 0.05% exposure to MCHP and 0.02% to ON.

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