Francisco Backs Flash Memory Merger

SANTA CLARA, Calif. (AP) – STMicroelectronics NV and Intel Corp. said Tuesday they will create a new independent semiconductor company which will supply flash memory devices for cell phones, MP3 players, digital cameras, computers and other high-tech equipment.

The Swiss and American chipmaking giants said the new company will be comprised of assets which generated about $3.6 billion in combined annual revenue last year.

Under terms of the agreement, STMicroelectronics will sell its flash memory assets, including its NAND joint venture stake, to the new company while Intel will sell its NOR assets and resources. NOR flash is a technology flash devices use to store and run code, usually in small capacities.

In exchange, Intel will receive a 45.1 percent stake in the new company and $432 million in cash. STMicroelectronics will own 48.6 percent of the new firm and receive $468 million in cash at closing. Francisco Partners LP, a Menlo Park, Calif.-based private equity firm, has agreed to invest $150 million in cash for convertible preferred stock representing a 6.3 percent stake.

In addition, the new company has commitments for a $1.3 billion term loan underwritten by a consortium of banks, and $250 million revolving credit facility. Proceeds from the term loan will be used for working capital and payments to Intel and STMicroelectronics.

The deal is expected to occur in the second half of 2007, subject to regulatory approvals and other conditions.

“The new company will be positioned to service customers with all of the elements necessary to deliver current and next-generation non-volatile memory technologies, while allowing ST to redefine its participation in flash memory,” said Carlo Bozotti, STMicroelectronics president and CEO.

Brian Harrison, current vice president and general manager of Intel's flash memory group, will become CEO of the new company, which will be headquartered in Switzerland. Mario Licciardello, current corporate vice president of ST's flash memories group, will become chief operating officer. The company will have nine main research and manufacturing locations around the world and about 8,000 employees.

Intel and STMicroelectronics each will appoint three directors to the new company's board, with Francisco Partners naming an additional two directors.

In a filing with the Securities and Exchange Commission, Intel said it expects to remain within its previous outlook for the second quarter and full year, except that it will no longer forecast asset impairments and restructuring charges for the second quarter.

Assuming the deal closes late in the third quarter or early in the fourth quarter of 2007, Intel said it expects fourth-quarter revenue and cost of sales will decline. Gross margins are expected to improve slightly as direct spending decreases, but still remain within the company's prior full-year forecast.

In April, Intel raised its gross margin forecast to about 51 percent for fiscal 2007, and said revenue in the second quarter is expected to range from $8.2 billion to $8.8 billion with a gross margin of about 48 percent.

Intel shares rose 25 cents to $22.88, while U.S.-listed shares of STMicroelectronics climbed 46 cents, or 2.3 percent, to $20.36 in morning trading.