Why is NXP putting its wireless business into a joint venture with STMicroelectronics, rather than selling the business outright?
After all NXP’s wireless assets are now held in a joint venture over which ST has an 80 per cent controlling interest which is tantamount to an outright sale.
Theo Claasen, NXP’s head of business development, answered this question last week.
“A joint venture means that we get a chance to participate in the upside”. Claasen told me, “in three years time, our 20 per cent stake will be worth more than it is now. We believe that there are $250 million in synergies to be gained from the merger. If we get 20 per cent of that, it is quite a large amount of money and, in three years time, our 20 per cent stake will have quite a big value.”
Structuring the deal as a joint venture also gives ST a lower initial cash pay-out than if it had bought NXP’s wireless business outright.
ST paid $1.5 billion for the transfer of assets into its control. If it had been buying the business lock stock and barrel it would have to have paid substantially more than just an extra 20 per cent on top of $1.5 billion.
“It’s a win-win situation for both companies”, said Claasen, “it keeps us committed to the deal. It means we’re saying: ‘We’ll help you grow this business.’”
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