On Semi to Sell Ignition IGBTs and More to Littelfuse

The U.S. Federal Trade Commission (FTC) has issued a ruling that requires ON Semiconductor to divest Its ignition IGBT business as a condition of acquiring Fairchild Semiconductor. According to a written statement from the FTC, "the divestiture to Littelfuse, Inc. will preserve competition in market for insulated-gate bipolar transistors used in automotive ignition systems. ON Semiconductor Corporation has agreed to sell its Ignition IGBT business in order to settle FTC charges that its proposed $2.4 billion acquisition of Fairchild Semiconductor International, Inc. is anticompetitive."

The product portfolio being acquired by Littelfuse includes TVS diodes and switching thyristors in addition to the ignition IGBTs for a combined purchase price of $104 million. This portfolio has annualized sales of approximately $55 million. The transactions are expected to close in late August, 2016.

“The acquisition of this portfolio aligns with our strategy to expand in power semiconductor applications as well as increase our presence in the automotive electronics market,” said Ian Highley, senior vice president and general manager, semiconductor products and chief technology officer for Littelfuse. “These products have strong synergies with our existing circuit protection business, will strengthen our channel partnerships and customer engagement, and expand our power semiconductor portfolio.”

Littelfuse also plans to invest approximately $30 million in its semiconductor fabrication locations to enhance its production capabilities, add significant capacity to its China fabrication facility and transfer the production of the acquired portfolio. The transfers will occur over the next few years, as the company works with customers on their timing and requirements. The expected productivity gains from this investment will drive long term profitable growth across the company’s semiconductor business.

“Once we complete the transfer of these products, we expect this acquisition to have EBITDA margins of more than 30 percent,” added Meenal Sethna, executive vice president and chief financial officer. “Including amortization, interest and integration expenses, we expect the earnings per diluted share impact of this acquisition to be neutral in 2016, and accretive in 2017 and beyond.”

According to the FTC complaint, the merged company would have a combined share of over 60 percent in the worldwide market for Insulated-Gate Bipolar Transistors specifically designed and calibrated for automotive ignition systems, or Ignition IGBTs. Without a divestiture, it is likely that the proposed merger would substantially lessen competition in the worldwide market for Ignition IGBTs, resulting in higher prices and reduced innovation.

Phoenix-based ON and Fairchild, headquartered in Sunnyvale, California, both develop, manufacture, and market a wide range of semiconductors. They are each other’s closest competitors for Ignition IGBTs sold to automotive suppliers, who then incorporate Ignition IGBTs into the ignition systems that they sell to automakers.

The proposed consent order, preserves competition by requiring ON to divest its Ignition IGBT business to Chicago-based manufacturer Littelfuse, Inc. within 10 days of the close of the transaction. The divestiture will include design files and intellectual property that Littelfuse needs to manufacture ON’s Ignition IGBTs. ON must also facilitate the transfer of its customer relationships to Littelfuse, and supply Ignition IGBTs for Littlefuse to sell to customers while Littelfuse sets up its manufacturing operations.