According to the news report by Bloomberg, chipmaker Qualcomm Inc. has cancelled its $44 billion offer for its rival NXP Semiconductors NV because China’s regulators did not approve what would have been the largest ever deal in the semiconductor industry. Qualcomm had agreed to pay NXP $127.50 per share for the company.
Qualcomm had told its investors that approvals from the Chinese regulators would come by the end of 2017. However, when that did not happen, the two companies agreed to push the agreement’s expiration date to July 25, and Qualcomm tried to work out the issue with China. However, this deal got dragged into the trade dispute between the governments of the two countries.
This failed takeover bid is probably the highest profile casualty of the ever escalating trade war between the US and China. China was the only jurisdiction left to approve this bid – all other relevant jurisdictions across the globe had already given their approval for this deal going through.
China, however, stated that its decision not to approve this deal had nothing to do with escalating tensions with the US. A Chinese commerce ministry spokesman, Gao Feng, stated that the deal had been disapproved by China because the issue was one of market monopoly. He then told the media that they could direct any further questions to the State Administration of Market Regulation (SAMR).
Qualcomm’s Chief Executive Officer, Steve Mollenkopf, on the other hand, feels differently. He stated that this takeover bid fell through because there were much larger forces at play than just the participants of the deal.
The claim that China made, that it prevented this deal from going through to stop a monopoly was not quite true, since both companies had little or no product overlap. Unfortunately, since China is the world’s biggest user of memory chips and is also the biggest market across the globe for smartphones, the regulators’ decision carries weight.
Eindhoven, Netherlands based NXP’s shares nosedived 7.2% to a trading price of $91.26 after this news broke. However, US based Qualcomm saw a jump of 5.1% in its share prices after this announcement.
NXP’s management, which has waited almost two years for this deal to materialize, will now have to convince its investors that it can still survive as an independent company. The company’s Chief Executive Officer, Richard Clemmer stated that it was unfortunate this deal between the two companies fell through after 21 months of effort.
Thanks to this fallout, Qualcomm will now have to pay NXP $2 billion and buy back $30 billion in stocks to smooth investors’ ruffled feathers. The world’s number one chip maker will also have to re-look at its strategy so that it can reduce its reliance on the smart phone market and look at new markets to enter.
The company is now struggling in the smart phone market since it is embroiled in a number of legal battles as well as facing intense competition. Mollenkopf stated that Qualcomm’s core strategy of pushing into higher growth industries remains unaltered.
The good thing that helped Qualcomm’s management steer investor concern away from this failed mega-deal was that the chip maker reported fiscal Q3 sales that beat all analysts’ expectations. Profits for Q3 were at $1.01 per share (after excluding certain items), while revenues for the company climbed to $5.6 billion. The market consensus prediction of Q3 performance was $0.70 per share on a revenue of $5.19 billion.
The company also forecast that it is expecting sales in Q4 to be between $5.1 billion and $5.9 billion, which is higher than the average market consensus of $5.46 billion.