NXP Faces Investor Push to Renegotiate With Qualcomm

  • Elliott Management among those said to approach chipmaker
  • NXP stock remains below the $110-a-share offer price

Investors including Elliott Management Corp. are seeking to pressure NXP Semiconductors NV to renegotiate with Qualcomm Inc. to persuade the U.S. company to raise its $110-a-share purchase offer, according to people familiar with the process.

Elliott is one of at least three large NXP shareholders agitating for a higher price, said the people, who asked not to be identified discussing private talks. The investment firms are preparing to approach NXP to renegotiate terms of the deal announced last October that they argue undervalues the company, the people said.

The board and shareholders of Eindhoven, Netherlands-based NXP have approved the $47 billion takeover by Qualcomm. Shares of NXP, the biggest supplier of chips to the automotive industry, have gained 10 percent this year, closing Tuesday at $108.14 in New York, which is still below the agreed deal price. Qualcomm’s stock has declined 12 percent in the period.

Qualcomm, the world’s largest maker of chips used in mobile phones, is seeking regulatory approval for the purchase. The San Diego-based company told shareholders it expects the acquisition will close by the end of the year.

The U.S. company’s need to complete the biggest deal in the history of the chip industry has only risen since it was first announced. Qualcomm is now facing legal disputes with major customers, including Apple Inc., and regulators around the world that threaten its lucrative technology licensing business, the main contributor of corporate profit. NXP would provide it with the key to diversifying outside of the phone chip business and expanding into semiconductors for cars.

Representatives of Elliott and Qualcomm declined to comment. NXP representatives didn’t respond to requests made after usual business hours in the Netherlands.

New Markets

The purchase is Qualcomm’s response to slowing growth in demand for smartphones, which provide the bulk of the company’s revenue. The two companies, which will have combined annual revenue of more than $30 billion, will have products that are capable of winning sales in markets worth $138 billion by 2020, Qualcomm predicted when it announced the purchase.

The equity value of the transaction was $38.5 billion when announced. Including debt, the enterprise value was $47 billion, Qualcomm Chief Financial Officer George Davis said at the time. The acquisition will add $11 billion of debt to Qualcomm’s balance sheet, which it will be able to rapidly improve by using the overseas cash it generates to pay it down, Davis said in October.

After reporting a loss in 2016, NXP is projected to post net income of $1.88 billion in 2017, according to the average of analysts’ estimates compiled by Bloomberg. Gross margin, or the percentage of sales remaining after deducting the cost of production -- a widely used measure of efficiency in the semiconductor industry -- is estimated to widen to 53 percent this year, a gain of about 3 percentage points from 2016. Sales of chips for automotive use now account for more than a third of its revenue.

Qualcomm was targeted by another New York activist in 2015, when Barry Rosenstein’s Jana Partners urged the company to consider spinning off its licensing business and cut costs. The chipmaker reduced its workforce 15 percent, overhauled part of its board and reviewed strategic alternatives in a standstill deal with Jana. Ultimately, it decided to keep its chipmaking and patent-licensing businesses together.

Elliott, the sometimes-activist hedge fund run by New York billionaire Paul Singer, has a track record of inserting itself in European acquisition targets. Recent examples include pressuring Anheuser-Busch InBev NV to sweeten its offer for British brewer SABMiller Plc, getting General Electric Co. to abandon a planned acquisition of German 3-D printing company SLM Solutions Group AG, and selling its Celesio AG convertible bonds to U.S. drug distributor McKesson Corp. to help get that acquisition closed. Elliott is continuing to pressure Dutch paint maker Akzo Nobel NV to accept a takeover bid from PPG Industries Inc.

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