Qualcomm Inc. is on track to abandon its $44 billion bid to acquire rival chipmaker NXP Semiconductors NV, after Chinese regulators failed to approve the largest-ever merger in the semiconductor industry before a final deadline.
Under the terms of their agreement, Qualcomm had until midnight in New York to get sign-off from Chinese regulators, who have delayed approval for months against the backdrop of rising trade tensions with the U.S. The company declined to comment, although it said in a statement earlier on Wednesday that it intends to pay NXP a $2 billion breakup fee and plans to buy back as much as $30 billion in stock if the purchase is scrapped.
The collapsing deal, unveiled in October 2016, is a blow to both companies. Qualcomm, the world’s biggest maker of mobile-phone chips, pitched the purchase of NXP as a way to jump-start a push into automotive silicon to reduce its reliance on the smartphone market, where it’s facing more competition and legal battles with customers. NXP’s management, after almost two years on hold waiting for the deal to close, will now have to find a way to convince customers and investors it has a strong future as an independent company.
“We didn’t see anything in the near-term that would make it worthwhile to change the timing. There were probably bigger forces at play here than just us,” Qualcomm Chief Executive Officer Steve Mollenkopf said in an interview before the deadline. “We are still fans of the deal and the logic behind the deal.”
Shares of Eindhoven, Netherlands-based NXP tumbled 1.6 percent to $96.79 in extended trading following Qualcomm’s statement. San Diego-based Qualcomm jumped about 3.4 percent. Qualcomm had been offering $127.50 per share for NXP and the transaction was approved by both sets of shareholders and government agencies in Europe, the U.S. and elsewhere.
China had been the final jurisdiction holding up completion of the transaction. Qualcomm had originally assured investors that approval would come by the end of 2017. In April, the two companies extended the agreement to Wednesday’s deadline as Qualcomm worked out concessions with China. But the sign-off was dragged into an escalating war of words and cross-border tariffs, with U.S. President Donald Trump accusing China of creating an unfair imbalance in trade between the world’s two largest economies.
Chinese regulatory authorities — in the form of the State Administration for Market Regulation — had been set to approve the acquisition, people familiar with the process said in recent months. But as the trade dispute continued, one particular sticking point was ZTE Corp., the Chinese telecommunications-equipment maker that had been in danger of failing because of a seven-year ban on buying U.S. components. After the personal intervention of Trump, the ZTE ban was lifted — something that was seen as a prerequisite to Chinese approval of the Qualcomm-NXP deal.
The ultimate failure of the deal, one that had been mutually agreed upon by two companies that had little or no product overlap, casts a further pall over the prospects for other transactions in the $400 billion semiconductor industry, which has been reshaped by combinations over the last three years. Qualcomm itself was the subject of a hostile takeover bid by Broadcom Inc., an effort that looked poised to succeed until the U.S. government blocked it, citing risks to national security.
Qualcomm also reported fiscal third-quarter sales that topped analysts’ projections and gave an upbeat revenue forecast for the fourth quarter, results that may help it steer investor focus to the strength of its main business.
Sales will be $5.1 billion to $5.9 billion in the fourth quarter, which ends in September, the company said in a statement Wednesday. Analysts on average projected revenue of $5.46 billion, according to data compiled by Bloomberg. Profit in the third quarter was $1.01 a share excluding certain items. Revenue climbed to $5.6 billion. Analysts had predicted profit of 70 cents a share on revenue of $5.19 billion.
In the process of fighting off Broadcom’s attempted takeover, Qualcomm made promises to investors that it would improve costs and earnings this year, and pledged that it would pour cash into a share-repurchase program if approval for NXP couldn’t be secured. Qualcomm is also once again the target of a takeover attempt — former Qualcomm CEO and Chairman Paul Jacobs is trying to raise cash to take it private.
NXP’s management, put in place by private equity firms who bought out the former unit of Koninklijke Philips NV then returned it to the market, avoided public appearances throughout the takeover process and suspended earnings conference calls. CEO Rick Clemmer and his team will now have to convince investors that they’ve been able to run the company and invest in its independent future without disruption through the process.