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Qualcomm's NXP Bid Faces Shortage of Support as Activists Circle

  • Elliott, other firms have bid up stock as they built stakes
  • Some investors say they want at least $125 a share for NXP

Qualcomm Inc. is hitting fresh snags in its effort to close a $47 billion bid for NXP Semiconductors NV. While it’s close to securing long-awaited regulatory approval, it’s not getting the support it needs from another key constituency: owners of NXP stock.

Investors who together hold at least 15 percent of NXP shares said they won’t back the existing offer of $110 a share, and they’re holding out for at least $125 apiece. They’re part of a group of funds, which collectively owns more than 20 percent of the company, that plan to press Qualcomm to raise its offer. In a sign that some shareholders anticipate a bump, NXP shares are currently trading at about $113, or about 3 percent above the proposed price.

Here’s the rub: Qualcomm needs holders of 80 percent of the stock to sell, or tender, their shares to clinch the deal.

Qualcomm, the No. 1 mobile-phone chipmaker, launched the takeover as a way to expand into chips for cars and other machines. Getting the deal done took on added urgency earlier this month, when the San Diego-based company itself became the target of an unsolicited acquisition proposal from Broadcom Ltd. Qualcomm’s board has rejected the $105 billion bid, arguing it undervalues the chipmaker’s growth prospects, which hinge at least partially on the boost it will get from NXP. Owning NXP would likely make Qualcomm more expensive and erect regulatory hurdles for Broadcom.

“It’s a much bigger, more complicated transaction for Broadcom to buy Qualcomm once it’s swallowed NXP,” said Roy Behren, a portfolio manager of the Merger Fund at Westchester Capital Management, which owns NXP stock. Behren expects Qualcomm to raise its bid. “It certainly could throw up a roadblock and make antitrust review much more complicated.”

Qualcomm declined to comment, and NXP said it had no comment beyond Chief Executive Officer Richard Clemmer’s remarks last month, when he reiterated the company’s commitment to the deal.

In May, Bloomberg reported that investors including Elliott Management Corp. were seeking to pressure NXP to renegotiate with Qualcomm to raise its offer. Elliott -- the hedge fund run by billionaire Paul Singer, who’s made part of his fortune by pushing for corporate shakeups -- is now the third-largest holder of NXP stock, with 4.86 percent, according to regulatory filings.

For the moment, the NXP deal is being held up by European and Chinese regulators. Executives from both Qualcomm and NXP have said the purchase is likely to close after the target date, which had been the end of 2017. European approval for the transaction may happen by the end of the year after the company struck a final agreement with regulators on patent licensing issues, according to people familiar with the review.

If Qualcomm can pay what NXP’s shareholders want, the timing of the acquisition’s close may influence how Qualcomm’s board and management respond to Broadcom’s approach. Broadcom has said it intends to continue the pursuit, despite the initial rejection. The company has until Dec. 8 to nominate directors to Qualcomm’s board, if it decides to take that route to getting its bid approved. When a company decides that it won’t be able to persuade its target’s board to take an offer, it can nominate candidates who will, in an attempt to appeal directly to shareholders.

Still, like Qualcomm’s acquisition of NXP, Broadcom’s attempt to combine with the smartphone chipmaker may face regulatory hurdles -- especially if it includes Netherlands-based NXP, which has employees and plants in Europe that make it likely to get extra EU scrutiny. That’s one argument Qualcomm made in rejecting Broadcom’s approach.

Chip-Industry Rally

Qualcomm and NXP announced the deal on Oct. 27, 2016. It’s taken this long to wind its way through the approval process. In that time, NXP investors argue, a lot has changed. Rivals such as Texas Instruments Inc., Infineon Technologies AG and Maxim Integrated Products Inc. have all rallied as the auto industry moves more quickly toward giving cars computing power by adding semiconductors. The benchmark Philadelphia Stock Market Semiconductor Index has surged 55 percent since the deal was announced. NXP is up just 15 percent in that time.

The market’s re-evaluation of similar companies means that Qualcomm, which has $39 billion in cash reserves, should pay more for NXP, some shareholders argue. Some would even prefer NXP to remain a standalone company, and hope Broadcom acquiring Qualcomm will help scuttle the NXP agreement.

“In a perfect world, Qualcomm gets taken out at $80, and NXP is out from under the $110 per-share buyout deal and trades up to the $145 to $165 where it belongs,” said Mike Green, a fund manager at American Money Management, which owns both stocks.

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