Cover Story April 3, 2008, 5:00PM EST

When a Buyout Goes Bad

(page 5 of 5)

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Under pressure to stop the bleeding, Mayer laid off 700 people Matthew Mahon

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"We have a heavier mortgage [than before the buyout]," says CFO Campbell Matthew Mahon

"The fact that it has heavy debt is just the structure of the deal," says new CEO Beyer Matthew Mahon

it's our God-given right to define the future of the market."

But just as Mayer was leading the company's fourth-quarter charge, he was also beginning to inch toward the exit. He had made $50 million in the buyout and appeared to have grown tired of serving multiple private equity masters, say people close to him. Richard says Mayer didn't want to endure a lengthy turnaround process. "I could sense he was ready for something bigger," he says. Mayer says his four-year contract was up and he didn't want to renew. Some of his bosses, however, say he had signed a new contract at the time of the buyout that superseded the old one.

Despite Mayer's increasingly tense relations with the board and sinking popularity among some staff, his decision to leave created anxiety inside Freescale. Rumors had been swirling that the company would sell off its wireless division, prompting employees to start interviewing for other jobs. Freescale's directors decided to delay the formal announcement of Mayer's departure until February so they could line up a replacement first. Richard M. Beyer, the chief of Milpitas (Calif.) chipmaker Intersil (ISIL), agreed to take the job after having grilled board members for seven hours about the company's prospects. His ties with Blackstone's Schorr, a Freescale board member, helped clinch the deal. During Schorr's Citigroup (C) days, he bought a division from Harris Corp. that eventually evolved into Intersil.

The Brooklyn-born Beyer, a former Marine who's fluent in Russian, doesn't seem deterred by Freescale's balance-sheet troubles. "The fact that it has heavy debt is just the structure of the deal," says Beyer, who plans to spend his first few months on the job getting up to speed on Freescale's customers, products, and employees. "I don't believe it's a problem in the sense that it will preclude us from doing the things we need to do in terms of investments or mergers and acquisitions." Some Freescale board members, however, say the company will limit future acquisitions to small, tuck-in deals such as the company's recent $110 million purchase of chipmaker SigmaTel (SGTL).

As Mayer stood at the podium in February, he got caught up in the drama of the moment. His executive team was showing a slideshow of events over the previous four years as his signature song, U2's Beautiful Day, swelled over the loudspeakers. "It was more emotional than I expected," he says. When one employee asked for some parting advice, he said to the crowd: "Believe in yourselves." Now Beyer must convince the world to believe in Freescale.

Emily Thornton is an associate editor for BusinessWeek. Burrows is a senior writer for BusinessWeek, based in Silicon Valley . Crockett is deputy manager of BusinessWeek's Chicago bureau .

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