TPG Discusses Cash Infusion for ON Semiconductor Corp.

SAN FRANCISCO (Reuters) – ON Semiconductor Corp (ONNN.O: Quote, Profile, Research, Stock Buzz) has reached out to private equity for a cash infusion as it seeks alternatives to issuing debt to buy some Atmel Corp (ATML.O: Quote, Profile, Research, Stock Buzz) assets, people familiar with the matter said.

TPG is one of the private equity firms ON Semi is talking to about getting an equity investment in return for a stake in the company, two sources told Reuters.

Earlier this month, Microchip Technology Inc (MCHP.O: Quote, Profile, Research, Stock Buzz) and ON Semi jointly made an unsolicited offer to buy rival chipmaker Atmel for $2.3 billion.

Atmel rejected the bid on Wednesday, saying it significantly undervalued the company. It also posted a net quarterly loss of $4.7 million, or a penny a share, compared with a year-ago profit of $16.6 million, or 3 cents a share.

Atmel shares, which closed Wednesday’s session at $3.53 on the Nasdaq, fell 3 cents in extended trading initially, but then rose nearly 2 percent to $3.60.

Investors have been doubtful that Microchip and ON Semi will be able to get the deal through, given that ON Semi will need to raise some financing in an unrelenting credit market.

On Oct 24, the arbitrage spread — a measure of how likely a deal is to get done — was 50.15 percent according to Reuters data. A wide spread usually indicates investors’ skepticism.

The proposed transaction would involve Microchip buying Atmel for $5 a share and then selling Atmel’s nonvolatile memory, radio frequency and automotive businesses to ON Semi.

ON Semi Chief Executive Keith Jackson has said the company could pay up to $1 billion for those assets, using more than $410 million of its own cash, $260 million under existing credit lines and the rest in additional financing.

However, the financial markets meltdown has made it nearly impossible to sell debt on attractive terms. Analysts have said this deal may not go through given the financing risk.

In its statement, Atmel raised the concern that ON Semi may not be able to raise the cash given the credit environment and the lack of a financing commitment.

But one of the sources said the chipmaker reached out to TPG given their long-standing relationship, rather than out of concern about debt financing.

ON Semi was spun out of Motorola (MOT.N: Quote, Profile, Research, Stock Buzz) and bought by TPG in 1999; it went public a year later with TPG owning a majority of the company. Last year, the private equity firm sold all its remaining shares of ON Semi.

TPG and ON Semi officials were not immediately available for comment.

By Anupreeta Das

(Editing by Phil Berlowitz and Bernard Orr)