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Qualcomm May Need Until Next Year to Close NXP Deal

Oct. 31, 2017
NXP admitted it could take several more months to resolve finger-wagging from both shareholders and antitrust regulators over its $47 billion sale to Qualcomm.

NXP admitted it could take a few more months to resolve finger-wagging from both shareholders and antitrust regulators over its $47 billion sale to Qualcomm. It may not be possible to close the deal until early next year, the company said.

The admission came after NXP announced its third quarter financial results. The Dutch chipmaker reported revenues of $2.39 billion, up from $2.2 billion in the previous quarter, but down 3% from the same quarter last year. The decline stems from the $2.75 billion sale of its standard products unit – now Nexperia – which sold discrete components and power switches.

“We are working diligently with Qualcomm and the various regulators towards a successful close this year. However, at this point the timetable is very tight and there is a possibility for the closing to occur in early 2018,” said Richard Clemmer, NXP’s chief executive, in a statement. The company has said that the deal would close before the end of the year.

Qualcomm announced last year that it would acquire NXP, whose secure microcontrollers and communication chips can be used in traffic lights and connected cars to thermostats and smartphones. This is Qualcomm’s way of doubling down on the Internet of Things, which Gartner predicts could encompass 20.4 billion connected devices by 2020.

Basically, Qualcomm is betting around two and a half dollars for each of these devices. NXP’s results suggest that the market for these devices is growing fast. Its automotive revenue was $948 million, up 11% from last year’s third quarter, while its secure connected devices group reaped $713 million, up 20% from the same quarter last year.

Investors have grumbled for months that NXP's business is more precious than the $110 per share that Qualcomm offered. That price is 34% higher than NXP's stock price at the time of the deal, but NXP is under pressure from its largest shareholder Elliott Management to push for a richer deal. Financial analysts suggest it should be closer to $130 per share.

The pricing debate is only one source of gridlock. Over the last year, around 3.6% of NXP shareholders have agreed to tender their shares to Qualcomm, which needs at least 80% for the deal to go through. Qualcomm extended the deadline to collect these shares again last week as it jumps through regulatory hoops in Europe and awaits approval in China.

Even though the deal combines two companies with different products, Qualcomm is still taking heat from antitrust regulators. U.S. regulators quickly gave the green light in April, but Europe’s review has been plagued with stops and starts. Qualcomm has failed to hand over key financial documents and has not offered concessions to allay antitrust concerns.

European regulators worry that Qualcomm will bundle its wireless modems with NXP’s secure communications chips that let smartphones make payments at credit card terminals. It fears that the current deal could raise prices and squeeze out rivals that supply one or the other technology to gadget makers like Apple and Samsung.

The European Commission halted the review for the second time last month, and the investigation's deadline still has not been reset. Regulators are also weighing the potential for Qualcomm to bundle NXP’s patents with its own, raising royalty rates for its standard 3G and 4G technology and prevent rivals from licensing NXP's tech.

These are two of Qualcomm’s tactics to support its patent-licensing business, which accounts for around a third of the chipmaker’s annual $23.6 billion in revenue. The tactics are under the regulatory microscope in the United States and Europe, as well as Taiwan and South Korea, where it has incurred billions in antitrust fines.

The deal must still pass China’s regulators, which have scuffled with Qualcomm before over its patent licensing tactics. But it will not be easy for another reason. Industry analysts say that regulators could force Qualcomm – a major multinational presence in China – to sell business units as a condition for approval.

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