Qualcomm to Scrap NXP Bid; China Fails to OK as Time Expires

(Bloomberg) -- Qualcomm Inc. said it will abandon its $44 billion bid to acquire rival chipmaker NXP Semiconductors NV, barring last-minute antitrust clearance from China, ending its 20-month attempt to complete the largest-ever deal in the semiconductor industry.

Under the terms of their agreement, Qualcomm has until 11:59 p.m. in New York to get sign-off from Chinese regulators, who have delayed approval for months against the backdrop of rising trade tensions with the U.S. The company intends to pay NXP a $2 billion breakup fee and plans to buy back as much as $30 billion in stock if the purchase is scrapped, according to a statement Wednesday.

A collapse of the deal, unveiled in October 2016, would be a blow to both companies. Qualcomm, the world's biggest maker of mobile-phone chips, pitched the purchase of NXP as a way to jump-start a push into automotive silicon to reduce its reliance on the smartphone market, where it's facing more competition and legal battles with customers. NXP's management, after almost two years on hold waiting for the deal to close, will now have to find a way to convince customers and investors it has a strong future as an independent company.

"We didn't see anything in the near-term that would make it worthwhile to change the timing. There were probably bigger forces at play here than just us," Qualcomm Chief Executive Officer Steve Mollenkopf said in an interview. "We are still fans of the deal and the logic behind the deal."

Shares of Eindhoven, Netherlands-based NXP tumbled 1.6 percent to $96.79 in extended trading following Qualcomm's statement. San Diego-based Qualcomm jumped about 3.4 percent. Qualcomm had been offering $127.50 per share for NXP and the transaction was approved by both sets of shareholders and government agencies in Europe, the U.S. and elsewhere.

China has been the final jurisdiction holding up completion of the transaction. Qualcomm had originally assured investors that approval would come by the end of 2017. In April, the two companies extended the agreement to Wednesday's deadline as Qualcomm worked out concessions with China. But the sign-off has dragged on into an escalating war of words and cross-border tariffs, with U.S. President Donald Trump accusing China of creating an unfair imbalance in trade between the world's two largest economies.

Chinese regulatory authorities -- in the form of the State Administration for Market Regulation -- had been set to approve the acquisition, people familiar with the process have said in recent months. But as the trade dispute continued, one particular sticking point was ZTE Corp., the Chinese telecommunications-equipment maker that had been in danger of failing because of a seven-year ban on buying U.S. components. After the personal intervention of Trump, the ZTE ban was lifted -- something that had been seen as a prerequisite to Chinese approval of the Qualcomm-NXP deal.

The ultimate failure of the deal, one that had been mutually agreed upon by two companies that had little or no product overlap, would likely cast a further pall over the prospects for other transactions in the $400 billion semiconductor industry, which has been reshaped by combinations over the last three years. Qualcomm itself was the subject of a hostile takeover bid by Broadcom Inc., an effort that looked poised to succeed until the U.S. government blocked it, citing risks to national security.

Qualcomm also reported fiscal third-quarter sales that topped analysts' projections and gave an upbeat revenue forecast for the fourth quarter, results that may help it steer investor focus to the strength of its main business.

Sales will be $5.1 billion to $5.9 billion in the fourth quarter, which ends in September, the company said Wednesday in a statement. Analysts on average projected revenue of $5.46 billion, according to data compiled by Bloomberg.

Profit in the third quarter was $1.01 a share excluding certain items. Revenue climbed to $5.6 billion. Analysts had predicted profit of 70 cents a share on revenue of $5.19 billion.

Third-quarter sales were boosted by a $500 million payment from a licensee that the company has been in dispute with. The sum is a partial payment of royalties. Qualcomm gets the bulk of its profit from fees charged on patents that cover the fundamental technology of all modern phone systems.

Qualcomm said the $30 billion stock repurchase will take place over the next five quarters. At current price levels, that would retire about a third of the company's outstanding shares.

In the process of fighting off Broadcom's attempted takeover, Qualcomm made promises to investors that it would improve costs and earnings this year, and pledged that it would pour cash into a share-repurchase program if approval for NXP couldn't be secured. Qualcomm is also once again the target of a takeover attempt -- Former Qualcomm Chief Executive Officer and Chairman Paul Jacobs is trying to raise cash to take it private.

NXP's management, put in place by private equity firms who bought out the former unit of Koninklijke Philips NV then returned it to the market, have avoided public appearances throughout the takeover process and suspended earnings conference calls. CEO Rick Clemmer and his team will now have to convince investors that they've been able to run the company and invest in its independent future without disruption through the process.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack, Molly Schuetz

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