Qualcomm, NXP Semiconductors deal collapse example of trade war impact

Reuters / Rick Wilking

• Qualcomm’s proposed $44 billion acquisition of NXP
  Semiconductors collapsed on Thursday — more than two years
  after it was first announced.
• The deal fell apart after Chinese regulators let the
  deadline for approval pass without signing off.
• While China says its lack of approval doesn’t stem from
  acrimony from mounting trade conflicts with the US, the CEOs of
  both Qualcomm and NXP have other ideas.

Qualcomm‘s proposed $44
billion acquisition of NXP Semiconductors hung
in limbo for months, awaiting regulatory approval from China, the
lone holdout.

Then President Donald Trump’s trade war took the world by storm.

As tensions between the US and China escalated over a series of
months, any sort of cooperation that might’ve previously been
expected fell by the wayside. In the end, Qualcomm’s mega-merger
— which would’ve been the biggest semiconductor deal in history —
seems to be collateral damage, as Chinese regulators let the approval deadline pass
without signing off.

But if trade conflict was the primary driver behind China’s
failure to approve the deal, it’s not letting on. Gao Feng, the
nation’s commerce ministry spokesman, said in a briefing early
Thursday that the decision to let the deadline pass was about
market monopoly, not trade.

Qualcomm CEO Steve Mollenkopf doesn’t sound so convinced.

“There were probably bigger forces at play here than just us,” he
said in an interview prior to the deadline. “We are still fans of
the deal and the logic behind the deal.”

Richard Clemmer, the CEO of NXP, was more pointed with his
criticism of the deal’s collapse, calling it a “purely political
decision.” He also said there was “no legal or power issue that
prevented the transaction.”

Now both companies are left to pick up the pieces of their failed
merger. Qualcomm is on the hook for the $2 billion termination
fee that was previously agreed upon. In order to assuage the
situation with investors, the company authorized a $30 billion
share buyback program. The chip maker’s stock climbed 4.3% on
Thursday amid the news.

Where Qualcomm goes next is less clear, with the prospect of
global M&A in the crucial Chinese market significantly
dampened by the failed NXP deal.

“Our core strategy of driving Qualcomm technologies into
higher growth industries remains unchanged,” Qualcomm CEO Steve
Mollenkopf said in a statement. “We will continue
to focus on our strong momentum in these growth industries.”

NXP CEO Clemmer is already pumping the breaks on speculation of
another merger, saying “uncertainty will keep us from doing such
a deal in the near future.” The company did say it will
repurchase $5 billion of shares, and plans to unveil a new
strategy at a September 11 analyst day in New York.

Traders were less forgiving when it came to NXP, pushing its
shares down more than 5% on Thursday. Prior to the deal collapse,
the company’s stock had climbed
more than 60% since February 2016.

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