Anybody look at the balance sheet? Do any investors who use these Yahoo boards ever look at a balance sheet? This company has a lot of debt and negative net worth, which is unusual for an IC company - looks like a bunch of financial engineers using OPM got a hold of it. Any thoughts on any of this?
Yes, some people look at the balance sheet.
Yes, FSL was the target of an LBO with the buyers being the Blackstone & others. As in other leveraged buyout, the Co was stripped of its 1 bil $ in cash and the money taken from banks to finance the purchase was put to the Co's balance sheet.
Today, Blackstone owns 196 mil shares out of 258. 76% of shares. At the IPO, Blackstone used the proceeding from the sale of 25% of shares (60 mil shares x 18 $ IPO price, minus the discount of the underwriter), around 1 bil $, to pay some of the debt with high interest.
Now, your question is: if or WILL Blackstone do the same with the other 200 mil shares? At 20 $ per share, the proceedings would be 4 bil $ out of 6.5 bil $ long term debt. If Blackstone would do that, the Co would be left with 2.5 bil $ in debt. Its market cap would be 260 mil share x 20 $ = 5.2 bil $ and it has today 3 bil assets. So the debt/market cap would be 50% or 83% debt/assets. On Semiconductor has a ratio of 25% debt to market cap.
You can look at semiconductor companies based on these two ratios and see that TXN has 27% debt/assets. MCHP has 25%. So, all in all, the debt seems crushing. The FSL fabs are old and they will require investment that FSL will not be able to do.
You as an investor have two things to consider:
1) Will Blackstone give up all their 200 mil shares to clean up the balance sheet of FSL? Without any reward? Blackstone already wrote-down a significant loss in their balance sheet regarding the FSL assets. But they still hold 75% of FSL. I do not believe they will do the same act of philanthropy to use the secondary IPO proceedings to erase debt as they did for the first 25%. No, no, no, that is what I think.
2) On a long run, 2-3 years down the road, will the lack of cash to invest in the business, in its hardware (manufacturing side) impact FSL? My opinion is that FSL will let the fabs extinct and become fabless. And pay more to TSMC to make their chips.
interesting comments, the company has termed out ~ 90% of the debt to 2020 at much lower interest and will pay off the remaining 10% of high coupon debt probably this year. the company is just starting to produce prodigous cash flow. no reason to sell equity to pay down debt in my view. tEspecially when they are outsourcing more AND raising margins as they do. CFO announced his retirment a couple weeks ago after doing great job getting financials in good shape.