Sources: Private Groups Vying for Freescale Semiconductor

Two private equity consortiums are bidding to buy chip maker Freescale Semiconductor Inc. (FSL) for about $16 billion, sources familiar with the matter said on Monday.

The company said it was in talks regarding a possible business transaction but that there were no assurances that talks would result in a deal, after the New York Times first reported that private equity firms were looking for a deal.

Freescale shares were trading up $5.69, or 18.5 percent, at $36.44 on the New York Stock Exchange after the news.

A group consisting of Kohlberg Kravis Roberts & Co. and Silver Lake Partners was the leading bidder for the company, according to two sources familiar with the matter.

The other bidding group includes Texas Pacific Group, Blackstone Group, Permira and Carlyle Group, sources said.

The New York Times said Bain Capital could possibly join with the Texas Pacific and Blackstone team but one person familiar with the matter said Bain is not involved with that group. All the investment firms involved declined comment.

Talk of the deal follows an agreement by Philips Electronics NV (PHG) to sell 80 percent of its chip division to a group of private equity firms including KKR, Silver Lake, Bain, Apax Partners and AlpInvest Partners for $4.35 billion.

Freescale, which was spun off from Motorola Inc. (MOT) in 2004, makes chips used in cellphones, network equipment and automotives. Texas Pacific already has a stake in Freescale, which is based in Austin, Texas.

Freescale derives about 28 percent of its revenue from its wireless and mobile systems group, its fastest growing unit on a revenue basis. This unit competes with larger rivals such as Texas Instruments Inc. (TXN) and Qualcomm Inc. (QCOM).

Since the spin-off, Freescale has worked to expand its customer base beyond Motorola, which is still its biggest client.

Stifel Nicolaus analyst Cody Acree said a deal would not likely have a big impact on the industry unless it distracts Freescale or worries customers to the advantage of rivals.

"In the end it might mean a stronger individual wireless group but in the meantime it probably means some distractions both for the company and customers," Acree said.

About 45 percent of Freescale's revenue comes from its automotive, industrial and consumer products unit and about 28 percent from its enterprise and telecom networking chip business. It has 24,000 employees in 30 countries.

In July, Freescale reported a quarterly profit that more than doubled to $260 million on revenue that rose 9 percent to $1.60 billion.