China to Restart Review of Qualcomm's Proposed NXP DealBloomberg News
Companies have agreed to get deal done by July or abandon
NXP shares surge, but still trade well below offer price
Chinese regulators have restarted their review of Qualcomm Inc.’s application to acquire NXP Semiconductors NV after having shelved the work earlier in reaction to growing trade tensions with the U.S., according to people familiar with the matter.
China’s Ministry of Commerce officials have been asked to hasten the long-delayed review of the purchase and Qualcomm’s proposed remedies to protect local companies, said the people, asking not to be identified because the talks are private. Chinese companies have expressed concern that the combined entity would extend Qualcomm’s patent licensing business into areas like mobile payments and autonomous driving. Shares of both companies rose.
The approval, if it comes, would mark another step back from a trade war that had threatened to engulf the world’s two largest economies. On Sunday, U.S. President Donald Trump stepped in to rescue ZTE Corp., the Chinese telecommunications equipment maker that had been in danger of failing because of a ban on buying U.S. components. In a Twitter post, Trump said he’s working with China’s president to give ZTE “a way to get back into business, fast.”
Approval for Qualcomm is not definite at this point and could still be delayed, the people said. The U.S. company declined to comment. Mofcom responded to a faxed request for comment by directing inquiries to the State Administration for Market Regulation, which from Monday had taken over at least some antitrust oversight from the ministry. Calls to that agency’s news office however went unanswered.
After the U.S. announced its ZTE penalties, Chinese authorities rallied to its defense. Mofcom responded by saying it’s “ready to take necessary steps” to protect domestic companies.
Shares of NXP surged 12 percent in U.S. trading while Qualcomm rose 2.7 percent. NXP closed at $110.74 a share, still short of the $127.50-a-share offer from Qualcomm, indicating that some investors aren’t yet convinced that permission will come through.
That reluctance to fully bet that the deal, which has dragged on for more than a year, will close may also reflect the political uncertainty, according to Sanford C. Bernstein analyst Stacy Rasgon.
“Our view has been that the most "logical" thing for China to do was to (eventually) approve the deal, but to extract as much as possible out of Qualcomm in the process,” he wrote in a report. “We also think it is prudent to keep in mind that this is President Trump so who knows what he might tweet out tomorrow?”
China, which has a say in the M&A transaction because it’s the world’s largest importer of semiconductors, is seeking to reduce its dependence on foreign technology and build its own industry. The country’s chip companies have rallied with anticipation that Beijing may increase its support for domestic competitors.
Chinese semiconductor-related stocks fell after Bloomberg News reported the restart of the regulatory review. Ningbo Kangqiang Electronics Co. fell as much as 7 percent, Changsha Jingjia Microelectronics Co. dropped as much as 3.3 percent and Ninestar Corp. slid 2.6 percent.
The NXP transaction is crucial for Qualcomm after it fought off a hostile takeover bid by Broadcom Inc. that forced its management to give commitments for future business expansion and earnings that it’ll now have to deliver. Qualcomm aims to lessen its dependence on a smartphone market that is slowing and where competitors and customers are increasingly fighting to overturn its dominance.
Qualcomm’s largest-ever transaction was announced more than a year ago and the San Diego-based chipmaker had told investors it would be closed by the end of 2017.
Qualcomm for approval from Chinese regulators last month. In return for an extention to their agreement, NXP demanded a July deadline for closing the deal.
The two companies have given themselves until July 25 at 11:59 p.m. New York time. If they haven’t obtained Chinese sign-off by then, Qualcomm will pay NXP the previously agreed termination fee of $2 billion, scrapping the more than $40 billion deal.
In February Qualcomm raised its offer for the company to $127.50 per share from an earlier bid of $110 a share. That raise was needed to persuaded Elliott Management Corp. and other activist investors who had piled into the stock demanding a higher price.
— With assistance by Steven Yang, Ian King, and Adveith Nair