Bain and Apax squeeze into €8.3bn Philips deal

The two global buyout firms have found a route back into the Philips’ semiconductor deal which KKR and its consortium tied up at the beginning of August.

Bain Capital and Apax Partners, two global buyout groups, are joining forces with the private equity consortium that beat them in the auction for an 80.1 percent stake in the semiconductor division of RoyalPhilips Electronics.

Philips said on 3 August it had agreed to sell the majority stake in the business for €8.3 billion.

Kohlberg Kravis Roberts, Silver Lake Partners and AlpInvest Partners were the original victors in the buyout battle, which also saw a third consortium of Blackstone, Permira and Texas Pacific walk away empty-handed.

According to Michel Plantevin, a managing director at Bain Capital, his firm will be writing the second largest equity cheque of the financial sponsors, after KKR, the largest financial investor in the deal. Plantevin said it was hard to assess if Bain was investing at a price it had not entertained in the auction.

He said: “We did not see the various offers. That we are joining now is a reflection of two things: one that eventually we felt very comfortable with the terms KKR and Silver Lake agreed with Philips. And two, we feel it is a strong, well positioned business and we like the management team a lot.”

The amount of equity the private equity consortium is committing to the transaction has not been disclosed, but Plantevin said: “It is the nature of the semiconductor sector to be significantly equitised, compared with similar transactions in the buyout world. It is significant in this deal.”

A source close to the buyout firm confirmed Bain would have representation on the board of the new company. Plantevin said the consortium was not disclosing at this stage what governance structure it would be deploying.

He said the consortium would support the existing management team which had begun a transformation of the business a little under two years ago. He said: “As a group of strong financial sponsors there was a sincere desire to participate in any industrial restructuring of the sector if it makes sense, using the business as a platform”

Philips’ semiconductor business is a supplier of silicon systems for mobile communications, consumer electronics, digital displays and networking.  The business employs about 37,000 people worldwide, and had sales in 2005 of €4.6 billion.

The transaction is expected to close in the fourth quarter of 2006, and is subject to closing conditions, including governmental and regulatory approvals.