Netherlands-based chipmaker NXP Semiconductors (NASDAQ: NXPI) has made its fair share of millionaires over the years. Since parting ways from former parent company Royal Philips eight years ago, NXP shares have returned a stunning 730%. That far exceeds Philips' 23% gains or the 135% lift seen in the S&P 500 over the same period.
But I'm here to tell you that NXP won't be making any more millionaires at this point. This is most certainly not the perfect time to buy NXP shares. In fact, it's time to sell your existing position and go home.
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Two poor choices
NXP is staring down two possible futures right now, and neither one is likely to result in rising share prices this year.
Qualcomm (NASDAQ: QCOM) might be able to close its $44 billion buyout of NXP. This would effectively put an end to NXP as a stand-alone company and investable stock, giving Qualcomm all of NXP's heft in the automotive computing and digital security markets. Shareholders will be sent $127.50 of pure cash for each NXP share, a boost from the original $110 bid per share that has won over some of the merger's fiercest critics. That would be a 10% gain from current prices, so you'd need to invest $10 million if you want to score a $1 million gain.
Alternatively, the merger could fail right at the goal line if China's regulatory review results in a flat-out block. The chances of this scenario playing out only increased when Trump started talking about trade wars with the Middle Kingdom. Three weeks ago, Chinese clearance and a completed buyout looked like a done deal. Now, Qualcomm can't even schedule a meeting to discuss the NXP deal with Chinese regulators. Uncertainty is weighing on NXP's share price, explaining the 10% discount at a time when the stock should be clinging close to the agreed buyout price.
The first scenario offers a modest 10% gain with an unknowable closing date. The second option would send NXP shares plunging as soon as the deal is canceled. The only choice that makes any sense under these conditions is to stay on the sidelines, perhaps getting ready to pounce on NXP if and when the no-deal discount arrives.
Under no circumstances am I a buyer of NXP shares today. Ask again when we know whether the Qualcomm deal is in the bag or not. If NXP shares still exist at that point, my answer is likely to be very different.
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