Fitch Places Intl Rectifier's Ratings on Positive Watch Following Proposed Acquisition by Infineon

CHICAGO--()--Fitch Ratings has placed International Rectifier Corp.'s (IR) (NYSE: IRF) Long-term Issuer Default Rating (IDR) and revolving credit facility (RCF) ratings of 'BB' on Rating Watch Positive following Infineon Technologies AG's (Infineon) definitive agreement to acquire IR for $3 billion. IR has no outstanding public debt.

The Positive Watch reflects Fitch's belief that IR's credit profile will meaningfully strengthen following the combination, likely resulting in an IDR of 'BBB' or higher for Infineon post transaction close. The combined company will benefit from greater scale, increased technology platform, sales channel and geographic diversification, and strengthened financial flexibility compared with IR on a standalone basis. Infineon also proposes to maintain leverage (total debt to operating EBITDA) below 2x and gross cash to revenues at 30% - 40%.

Infineon intends to acquire IR in an all cash transaction valued at $3 billion or $2.4 billion on an enterprise value basis. Infineon will finance the acquisition, which has been approved by the boards of both IR and Infineon, with cash on hand and a EUR1.5 billion credit facility. The deal is expected to close in late 2014 or early 2015 subject to approval by RF shareholders and regulators.

Pro forma for the deal, combined annual revenues will be nearly $7 billion with an operating EBITDA margin in the mid-20s. This compares to IR's $1.1 billion of revenues and an operating EBITDA margin of 18.1% for the latest 12 months (LTM) ended June 29, 2014. Fitch expects the deal will provide meaningful operating margin expansion opportunities, driven by excess and more efficient capacity management at Infineon, along with the elimination of overhead redundancies.

The combined company will leverage Infineon's power semiconductor capabilities with IR's power conversion and Gallium Nitride capabilities. IR will benefit from Infineon's significant direct customer portfolio in the European Union, while IR increases Infineon's exposure in the U.S. and Asia-Pacific.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 14, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=855835

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Contacts

Fitch Ratings
Primary Analyst:
Jason Pompeii
Senior Director
+1 312-368-3210
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
John M. Witt, CFA
Senior Director
+1 212-908-0673
or
Committee Chairperson
Robert Curran
Managing Director
+1-212-908-0515
or
Media Relations, New York
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst:
Jason Pompeii
Senior Director
+1 312-368-3210
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
John M. Witt, CFA
Senior Director
+1 212-908-0673
or
Committee Chairperson
Robert Curran
Managing Director
+1-212-908-0515
or
Media Relations, New York
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com