Texas Instruments Inc. Monday said it will sell its sensors and controls business to private-equity firm Bain Capital LLC for $3 billion in cash as it focuses on chips for mobile phones and other consumer electronics.
The deal allows Texas Instruments to part company with a business that has little bearing on its current objectives, the company said. It also highlights a growing trend of private-equity firms seeking deals in the technology sector, an area they historically have avoided.
Thomas Wroe Jr., president of the sensors and control unit, will continue to lead the 5,400-person organization, Texas Instruments said in a statement. The current management team also will remain with the unit, the company said.
The Attleboro, Massachusetts-based division produces switches and sensors for vehicle transmissions and thermostats as well as aircraft circuit breakers, air conditioning products and other items. It reported revenue of just more than $1 billion in 2004.
The sale will allow Texas Instruments to focus on its semiconductor business, including analog and digital signal processing chips, Chief Financial Officer Kevin March said in an interview.
"We believe this will allow sensors and controls to actually start investing in its own growth opportunities because, frankly, the semiconductor business grows at a much faster pace than the sensors and controls (business) is able to grow," March said.
The company said it expects the sale to be completed in the first half of 2006. The Texas Instruments board of directors has approved the sale, though completion is contingent on regulatory approval, the company said.
The sale will not include the radio frequency identification (RFID) business, Texas Instruments said.
Texas Instruments has no specific plans for the cash, but could use it for acquisitions, stock repurchases or shareholder dividend increases, March said.
March said the company expects to record a financial gain on the sale, but said it will not have an impact on the company's 2005 fourth-quarter results.
Texas Instruments forecast earnings of 38 cents to 40 cents per share on revenue of $3.6 billion to $3.7 billion.
Buyout firms targeting tech
Reports that TI had hired Morgan Stanley to sell the unit surfaced in October, with Bain seen as an early front runner.
Private-equity firms are seeking more deals in the technology sector, attracted by an improvement in cash flow, a key element for buyout shops that need cash to pay down debt used to finance purchases. Buyout firms buy companies, restructure a business and then sell them.
"This is a company that has leading market share in some pretty attractive industries and lots of opportunities to continue that growth," Bain Managing Director Steve Zide said.
"Under TI, it was obviously not core to them. This business will now be solely focused on strengthening its competitive position," he said.
These cash-rich firms are also flocking to the tech space in search of new ways to invest their money as competition for takeover targets intensifies.
TI's unit, while part of a larger technology company, also falls into the basic manufacturing category, another attractive area for buyout firms that seek simple businesses.
More deals like the TI unit sale are expected throughout the buyout community. As companies increasingly seek to unlock shareholder value by selling off assets, private-equity firms are lining up to be the buyers.
Buyout firms agreed to buy a unit from Tyco recently and are expected to bid on Verizon's phone directory unit, for example. Computer Sciences and Affiliated Computer Services have been approached by buyout firms, according to newspaper reports.
Texas Instruments shares were down 41 cents, or more than 1 percent, at $34.04 in morning trading on the New York Stock Exchange.