Qualcomm raises price for NXP Semiconductors to $43 billion: Will it fend off Broadcom?
Qualcomm has raised its offer to acquire Dutch Automotive chipmaker NXP Semiconductors to $43 billion, which may help the San Diego company’s case for remaining independent ahead of its hostile takeover showdown with rival Broadcom.
Qualcomm announced Tuesday that it had increased its offer for NXP from $110 per share to $127.50 per share. NXP’s shock had been trading around $120 per share last week.
More importantly, nine shareholders who own 28 percent of NXP stock and have been advocating for a higher price pledged to sell their shares to Qualcomm at the new price.
They include Elliott Advisors, which has led the charge for Qualcomm to increase its original $38 billion bid. Elliott had been seeking $135 per share.
NXP makes chips used in keyless entry, infotainment and radar in cars, secure payment cards and many other technologies. It is a key cog in Qualcomm’s argument for remaining a standalone company.
Not only would a deal with NXP boost Qualcomm’s profits by $1.50 per share by 2019, it also would diversify Qualcomm’s business beyond smartphones, where sales have slowed.
Without NXP, Qualcomm’s growth prospects from the expansion of cellular technologies into cars, Internet of Things gadgets and other new industries likely would be hamstrung.
“NXP is a highly strategic and attractive acquisition for Qualcomm that enhances the value of our leading 5G technologies,” said Chairman Paul Jacobs in a statement. “We also believe the revised agreement provides certainty for both Qualcomm and NXP shareholders.”
The NXP acquisition has been approved by eight global competition regulators but is still awaiting approval from China, which is on holiday until Feb. 24 for Chinese New Year.
How the higher price plays into Broadcom’s $121 billion hostile takeover effort for Qualcomm remains unclear. But it does make its acquisition more costly and possibly adds to the regulatory hurdles facing the deal.
“From the Qualcomm-Broadcom merger perspective, the deal makes Qualcomm a relatively less attractive target for Broadcom,” said Morningstar analyst Abhinav Davuluri.
Broadcom Chief Executive Hock Tan has said his $82 per share “best and final” offer for Qualcomm was conditioned on the NXP deal closing at $110 per share or not at all. He hasn’t said exactly what Broadcom would do if Qualcomm pays more for NXP.
“We will see what Broadcom does now,” said Bernstein Research Analyst Stacy Rasgon in a note. “While their current offer is premised on NXP going at $110, they would, of course, not necessarily be precluded from making a new offer premised on the new NXP price.”
Broadcom said early Tuesday that it was evaluating its options.
In a statement, Broadcom said the revised price for NXP “is well beyond what Qualcomm has repeatedly characterized as a “full and fair” price. We believe any responsible board would have seriously engaged with Broadcom regarding Broadcom’s value-maximizing offer and the terms of the NXP acquisition, particularly in light of the recent recommendations from ISS and Glass Lewis. Broadcom believes the price increase demonstrates the Qualcomm board’s disregard for its fiduciary duty to maximize value for Qualcomm stockholders.”
Broadcom has proposed six alternative nominees to Qualcomm’s 11 member board of directors to push the $121 billion hostile takeover through. Qualcomm shareholders will vote to support either Broadcom’s candidates or the existing board at the company’s annual meeting on March 6.
Broadcom got some good news recently when Institutional Shareholder Services, an influential investor advisory firm, recommended that Qualcomm shareholders vote to install four of Broadcom’s six nominees for the Qualcomm board.
Another proxy adviser, Glass-Lewis, recommended on Tuesday that Qualcomm shareholders support all six of Broadcom’s alternative nominees.
Recommendations from Glass Lewis and ISS are important to big index funds and mutual funds, which own a significant percentage of Qualcomm’s stock.
Qualcomm noted that NXP’s financial results last year were better than expected when the two companies entered into a merger agreement in October 2016. Operating income jumped 20 percent year over year, and automotive sales rose 11 percent.
In addition to hiking the price, Qualcomm also negotiated revised terms to its tender offer. Now shareholders owning 70 percent of NXP shares must pledge to sell their stock for the acquisition to close, down from 80 percent previously.
Qualcomm will fund the increased price for NXP with existing cash and new debt. It has extended the deadline for NXP shareholders to pledge their shares to 9 p.m. Pacific Time on March 5.
Qualcomm’s shares ended trading Tuesday down 1 percent at $63.99. Broadcom’s shares were up slightly at $249.62.
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