bloggingbuyouts

Freescale is the old chip giant that was acquired by a private equity group led by The Blackstone Group (NYSE: BX), The Carlyle Group, and Permira Advisers. Prior to being public, this was a unit of Motorola Inc. (NYSE: MOT).

The company still has to report earnings as though it was a public company because of its ratings and because of its public debt. The company has shown that over the last twelve months, the company's adjusted EBITDA was $1.55 billion.

Net sales for Q1-2008 were $1.405 billion, up from $1.361 Billion in Q1-2007 and down from $1,539 billion in Q4-2007. Unfortunately, the company is still posting an operating loss of $152 million for the quarter, compared to $654 million in operating losses in Q1-2007 and $595 million in Q4-2007. The net loss after items for this last quarter was $245 million, also down from a loss of $539 million in Q1-2007 and down from a loss of $525 million in Q4-2007.

Its cash and total short term investments were $1.25 billion on March 28, 2008, compared to $751 million at the fourth quarter ending December 31, 2007; and its accounts receivable were $680 million and inventory was $732 million. But here is where things get tricky. Its long-term debt is $over $9.3 billion alone. Of the company's total asset base of $15.197 billion, more than $5.3 billion is goodwill and more than $3.6 billion was listed as intangible assets.

If you go back to the BloggingBuyouts article, "Why private equity firms avoid technology companies," you'll see that being a highly leveraged technology company that requires high capital expenditures isn't always the greatest place to be be. Unfortunately for all the private equity partnersm the company can't live on EBITDA alone and many believe that Freescale will need more capital and thus more leverage.

The original private equity deal was put at $17.6 billion for an enterprise value. So far that isn't turning out too great. Who knows, maybe a re-IPO of Freescale isn't too far off.

Jon Ogg is a producer and editor of the Special Situation newsletter for 247WallSt.com.

If you've ever wondered why so many low-P/E ratio technology companies haven't been gobbled up, there is a really good explanation: R&D, leverage, and volatility.

Business Week just ran a great cover story titled "When a Buyout Goes Bad" for this week's magazine. The case in hand is the old private equity buyout of Freescale, which was the chip business from Motorola Inc. (NYSE: MOT). This talks about a company that was turned around from the edge of the cliff by a great tech leader who created a great stock again. Then the $17.6 billion buyout came from a group led by The Blackstone Group (NYSE: BX), Carlyle Group, and Permira Advisers. This buyout came after being in a competing bid from a consortium led by KKR, Bain Capital, Apax Partners, and Silver Lake Partners.

Last year the company's revenues fell 10% while the chip sector revenues grew by 5%, then Motorola announced a spin-off or sale of its handset business, and then there is the issue of the $9.5 billion in debt that was clumped on top of the company to get the private equity buyout done.

Unless you are selling transistors and capacitors or just plain Jane DRAM, technology companies require heavy R&D commitments. This is why historically technology companies used to come public back before the 1990's "get rich from tech stock option awards" became the norm. The accounting changes required investor backers of a different group to mark down 15% of their $7 Billion stake as well. In fact, it notes that it is having a hard time ponying up the $1.2 billion for R&D and $400 million for capital expenditures needed for Freescale. And now there are inventory problems.

For me personally, I am not all that surprised that Freescale was a temporary success. One night right shortly before Freescale was spun-off by Motorola, I was flying from Austin to Chicago. I spoke to two workers that said they were low level managers for Freescale. When they called the company "Free-Fall" and told me about some of their pension or retirement issues and stock option plans getting mixed up (not for the better, at all), it left a bad taste in my mouth. Then when this one went private with that much debt and knowing what comm-chip R&D percentages of revenue were, I thought the billionaires were drinking too much of the cool-aid.

You should read that article as it puts it well into context. This is why niche technology companies generally end up being acquired by other niche technology companies or by larger tech companies that are competitors or that can complement each other. In mid to late-2006 you started seeing the private equity frenzy go into overdrive.

If you want good news or the silver lining, I do actually have some. I think that there will be another wave of public technology companies that get acquired. But the buyers will almost all be LARGER public technology companies. Private equity and technology can mix, but the deals need to be smaller deals with less leverage and in companies that require less R&D.

Motorola's (NYSE: MOT) plan to spin-off its handset division isn't good enough for Carl Icahn: "We believe Motorola is finally moving in the right direction, but certainly still has a long way to go."

Last year, Icahn was rebuffed in his efforts to gain a seat on the board and send then-CEO Ed Zander packing. With the company continuing to underperform badly, Icahn's latest effort to add his people to the company's board of directors could find a better reception the second time around.

I'd like to ask that big institutional investors who voted against Icahn's proxy contest what they were thinking. In spite of his reputation as a rapacious vulture, Carl Icahn is someone that every investor should be delighted to have on the board of directors at a company he owns a stake in.

Back in October, Icahn said this about Motorola: "There is value there, and if that value doesn't manifest itself I, as an activist, would think very seriously about coming back."

I think it's fair to say that the value has failed to manifest itself and now King Icahn is back with a vengeance. Hopefully Wall Street will listen up this time.

General Electric Company (NYSE: GE) might be getting to look into the eyes of private equity quite a bit closer now. Lee Equity Partners has brought on Robert C. Wright, Vice Chairman and Director of G.E., to serve the firm in the role of Senior Advisor.

Audible Inc. (NASDAQ: ADBL) is being downgraded today to "Hold" from "Buy" at Citigroup, although this is just after the run-up from the acquisition announcement and isn't really indicative of anything besides the exit call.

Warren Buffett be darned. There is a report today that a "Bond Insurer Rescue Package" is coming from major U.S., Candian, and maybe U.K. banks. The banks need to save their own skin and remember "financial mergers may be mandated rather than preferred" is our theory. Ambac Financial Group (NYSE: ABK) and MBIA Inc. (NYSE: MBI) are ramping solidly on this today.

I'd really pay attention to IAC/Interactive Corp. (NASDAQ: IACI) this morning on the heels of the largest Internet merger ever that was announced this morning.

Keeping up with Rio Tinto plc (NYSE: RTP) is starting to look like counting the votes in the Iowa caucus. This merger goal and action is changing daily. It is obvious these metals and mining firms are trying to consolidate into just a few major international players so they can control the supply side of the equation to influence prices. Is that a conspiracy theory? Remember, OPEC already does that.

Motorola Inc. (NYSE:: MOT) has finally capitulated and is putting its cell phone operations up for grabs.

Sprint NexTel Corp. (NYSE: S) is writing off almost the entire kit and kaboodle for what it paid for NexTel.

Jon C. Ogg is partner and editor of 247WallSt.com.

Motorola Inc. (NYSE: MOT) CEO Ed Zander just can't get a break. Only months after activist investor Carl Icahn lost his bid to become perched on Motorola's board of directors and start his inside campaign to remove Zander, activist investor Eric Jackson summoned 20 fellow Motorola shareholders using Internet tools like blogs and online videos to commit their collective 47,000-share-strong voice in an effort to can Zander and four of 10 active Motorola board members.

Is the age of the billionaire activist investor over? Not quite. But smaller investors are using real-time communication tools via the Internet to build a solid and significant following in their quest to push for change at companies where share prices have remained stagnant or gone down. Motorola is one such company, and one that is being beat up by competitors Nokia (NYSE: NOK), Samsung and LG right now. It needs a cellphone hit like the RAZR to ignite sales and excite customers again, but its product lineup and roadmap looks quite staid next to the competition, save for the RAZR 2.

Jackson is no novice at this game, as he took six months to wage a replacement campaign against former Yahoo! CEO Terry Semel, and ended with 100 YHOO shareholders holding a collective two million shares. Jackson claims that the shareholders he reaches out to in these grassroots campaigns are legit owners with no material misrepresentation. Not bad for the small investor, eh?

As Zac covered earlier, Activist investor and accountability guru Carl Icahn has been pushing for reform at Motorola (NYSE: MOT) for some time now. The guy has a little under 3% of Motorola's shares in his stable and as such, wants a position on the Motorola board of directors and some say into what is (not) going on at the company. Specifically, I think he is after Motorola CEO Ed Zander's job -- and he may get it.

Zander, an operational guru with a long history at Sun Microsystems, was hired in 2004 after the great grandson of Motorola's founder was told to pack his boxes and pick up his pink slip. Chris Galvin had Motorola involved in too many business ventures and too many silos of performance and management to deliver consistency to the shareholder. Zander seemed the perfect fit -- a tough Brooklyn-ite who whipped Sun into shape and knew his away around areas outside just ops and logistics as well.

The Motorola RAZR dropped to the market right after Zander arrived and became the best cellphone seller in recent memory (maybe ever). Zander happily took credit and all was sunny at Motorola. Fast forward three years: Motorola has not had another hit and South Korean competitors like LG and Samsung have been brutal on the company. Even higher-end handset outfit Sony Ericsson has done very well.

Motorola? They've seen profits plunge, and the future looks cloudy as well. What does Icahn want to do? Get a return on his investment, of course, but to do that he wants to toss some existing Motorola management aside and re-arrange things. If he succeeds, let's hope the actions are more than re-arranging deck chairs on the Titanic. With Icahn's track record, that probably won't happen if he is able to exert his influence shortly. After seeing the seething response to Icahn from Motorola based on today's annual shareholder meeting, this week ought to see some interesting things begin to shape up -- especially after the meeting this evening and the MOT board elections.

As investors await the results of the annual meeting at Motorola (NYSE: MOT), I think it's an appropriate time to ponder what exactly Carl Icahn's motives are in his battle for a place on the company's board of directors. Motorola's CEO has publicly questioned Icahn's motives -- suggesting that he is more interested in a short-term profit than the long-term health of the company, an allegation that Icahn strongly denies. He has said he will hold his shares long-term if elected to the board.

With his net worth of 9.7 billion dollars putting the septuagenarian at #24 on the Forbes List, it's tough to imagine that he's motivated by pure profit, the way that he seemed to be in his heyday as a junk bond-fueled corporate raider in the 1980's. So what exactly is Icahn up to?

I would argue that he's battling Motorola management to cement his legacy as a shareholder activist, focused on dueling with greedy management, much like he has in his battle with management at Blockbuster. Partly because of management and media propaganda and partly because of the reality of his actions, Icahn's "activist investments" in the 1980's left him about as well-liked and respected by the average American as Ken Lay, or perhaps Sanjaya.

Now, he has replaced his motives of pure profit with, at least outwardly, a concern for the competitiveness of America going forward. In a February interview with Time Magazine, he responded to a question about whether his work accomplished anything other than making money: "America is going to lose its economic hegemony if we don't do something along the lines of what I'm doing, where you make managements accountable. Our companies are really not competitive with Asia, and this is the great new threat." He even expressed concern about executive compensation compared to the salary of the average worker, and frequently opines on the non-existence of corporate democracy.

Regardless of how you feel about Icahn's work in the 1980's, there can be no doubt that he's right about most of his complaints today. And if his battles with companies like Motorola continue to keep management teams on their toes, I would argue that his legacy will be a net positive. And I think that's the goal of his career today.

With the exception of Dan Loeb's angry letters to executives he considers incompetent, there are very few things on Wall Street that are more exciting than watching Carl Icahn, the father of activist investing, battling management. Until recently, Icahn had taken a fairly kind approach to his dealing with Motorola CEO Ed Zander.

Then there was this: With the annual stockholders' meeting scheduled for this coming Monday, the two decided that there was no better time to trade barbs in the media:

Icahn (in an interview with David Faber): "They have done a terrible job and the board has not done a damn thing about it in my opinion."

"You just don't need another big name guy in the Motorola board, sort of from the same cookie cutter. You know, the Bohemian Club, Augusta Golf Club. ... These boards don't hold the executives accountable. I don't think they do their jobs at all. I said, 'Hey, if you don't really want me on, I would put another large shareholder on.' They didn't want that. So it has it be. I feel that I'm a hell of a nice guy and that they would get to like me."

While I don't know many people (his supporters included) who would describe Icahn as a "hell of a nice guy," his remarks on corporate governance seem spot on. He went on to say that many public companies are run like "fraternities."

Not to be outdone, Motorola wrote in a letter to shareholders that, "We question -- as [shareholders] should -- whether Carl Icahn will act in the best interests of all Motorola shareholders, or just in the best interest of Carl Icahn."

I am declaring Carl Icahn the strong winner in the first round of this battle. Icahn blasted the company's lackluster performance, while Motorola bizarrely suggested that Icahn would act in his own best interests rather than those of the other shareholders. But Icahn is a shareholder! It's hard to imagine how he could act in his own best interests here without helping other shareholders. He will make money with an increase in the share price -- and so will other shareholders.

After beginning his involvement with Motorola (NYSE:MOT)with a relatively tame call for a share buyback, legendary activist investor Carl Icahn has upped the rhetoric at the company with an open-letter to the company's management that will be published as a full-page ad. The Wall Street Journal (subscription required)has reviewed the ad and it sounds pretty exciting: Icahn writes that the company has "Motorola has stumbled, and stumbled badly" and referred to a recent comment by CEO Ed Zander as "something straight out of Alice in Wonderland."

It'll be interesting to see what reaction the stock has -- several proxy firms have recently lent their support to Ichan's bid for a seat on the company's board, which should come as no surprise. When it comes to extracting shareholder value out of questionably managed companies, few can come close to Icahn's track record.

The companies current directors have reportedly questioned Icahn's knowledge of the company's business and technology in general. They may have a point. But when it comes to matters of corporate governance, few know as much as King Icahn. And when he calls for change, investors are likely to listen.

Over the past few months, there has been a ton of takeover talk about Palm Inc. (NASDAQ: PALM). The company is certainly attractive. It has lots of cash and a strong global footprint. Today there was a report in Unstrung that says a deal could be wrapped up this week.

The buyers may actually be two major private equity firms: Texas Pacific Group and Silver Lake Partners. Of course, Palm would be a nice fit for a strategic party like Motorola Inc. (NYSE: MOT) or Nokia Corp. (NYSE: NOK). In fact, a deal with Motorola may actually quell some of the ardor of its big shareholder, Carl Icahn.

To add even more drama, Palm is going to report its earnings on the 22nd. Unstrung says the offer for Palm is likely to be above $20. And, given all the suitors, I think a high price is likely. Currently, Palm is trading at $19.01.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.