Debt-free Infineon to go on M&A prowl

FRANKFURT, GERMANY: German chipmaker Infineon  is ready to help consolidate the semiconductor sector now that a capital hike and the sale of an asset have relieved its stretched balance sheet, it said on Tuesday.

Infineon said the capital increase generated gross proceeds of 725 mllion euros ($1.04 billion), letting it restructure its finances and leaving it free of debt.

"That gives us the necessary room to take part in consolidation expected to happen," Chief Executive Peter Bauer told a conference call with journalists.

Five-year credit default swaps on Infineon tightened by more than 55 basis points to less than 344 basis points, according to Markit data.

Only weeks ago Infineon had been considered a candidate to seek German state support, although management never confirmed whether it would. Bauer on Tuesday said only: "State aid is off the agenda."

Infineon plans to use proceeds from its rights issue to repay convertible bonds maturing in June 2010 and exchangeable bonds maturing in August 2010.

Originally, U.S. investment firm Apollo had planned to take a stake of 15 percent to 29 percent in Infineon, agreeing to buy any shares not taken up by existing shareholders.

But shareholders purchased most of the shares on offer, leaving Apollo with a 1.3 percent stake and a commission of around 21 million euros.

Ahead of the capital increase Bauer had tried to dispel fears that Infineon would be broken up if the activist investor took a large stake.

Infineon competitors such as Dutch NXP and U.S. company Freescale have not fared well with financial investors on board.

NXP, owned by private equity firms including Apax, Bain Capital and KKR, is grappling with a heavily leveraged balance sheet and burdened by continued low global demand for semiconductors.

Freescale, formerly Motorola's semiconductor unit, was taken private in 2006 by Blackstone Group, Carlyle Group, Permira Funds and Texas Pacific Group. Its $4.25 billion term loan was issued as part of the leveraged buyout, one of the largest private equity buyouts.

Infineon, floated in 2000, has been at pains to ease its financial situation, leading it to sell its wireline business to a U.S. investor and implement strict cost-saving measures.

Europe's biggest automotive chip supplier will have four units left after the sale: Automotive, Wireless Solutions, Industrial & Multimarket and Chip Card & Security.

Bauer reiterated that he assumed the quarter ended in March was the worst one this year and that he expected to see further market improvement in the current quarter. (Reporting by Nicola Leske and by Jane Baird in London; Editing by Rupert Winchester