Did Michel Mayer dig his heels in at Freescale? One wonders whether the private equity owners of Freescale were pushing him to take measures which he could not stomach.
To announce that the boss is leaving before a new boss is lined up, as was the case with Mayer’s departure announced last week, suggests that Mayer’s departure was something other than a planned, smooth transition.
Mayer, who led Freescale through an IPO after it was spun-off from Motorola to become a separate company, and then led it through a private equity sale to a group led by Blackstone, might well have had enough of several years of restructurings.
He’s a tough guy, but even tough guys have a limit, and years of presiding over former colleagues being axed must exact a toll on anyone.
Freescale went through a big restructuring at the time of the IPO in 2004. This had turned the former Motorola Semiconductor into a pretty lean machine.
“We had done all the work on cost-cutting and stream-lining to prepare the company for the IPO. Then it was bought for more than market price," says a former Freescale board member, concluding: “Freescale was not a suitable target for a private equity buy-out”.
The Blackstone-led consortium acquired Freescale in 2006 at a valuation of $17.6bn.
Then Blackstone loaded up Freescale with $9bn of debt.
“Typically semiconductor companies run without debt”, says the former Freescale director, “loading it up with that much debt was going to make it very difficult."
Since then the company’s financial position has deteriorated rapidly as its best customer, former parent, Motorola, suffered a collapse in its cellphone market share, from 20.3 per cent in Q406 to 12.4 per cent in Q407.
In 2007, Freescale lost $1.6bn on sales of $5.7bn which were down from 2006’s revenues of $6.36bn.
“The company is well positioned to continue its transformation," said Mayer in a somewhat ambiguous statement.
Freescale director Daniel Akerson, who is a managing director at The Carlyle Group, one of the consortium which acquired Freescale, commented: “Freescale is in a strong position today, and we are confident it will continue to strengthen going forward.”
Can these private equity guys manage a complex business like Freescale which has run into trouble?
Can they find a guy capable of running the company who is willing to do it?
Or have they already admitted defeat and are looking to break up Freescale and get back whatever they can from their investment?
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