It's time for another review of Qualcomm's (NASDAQ: QCOM) tender offer for all shares of NXP Semiconductors (NASDAQ: NXPI). A month ago, the number of shares committed to Qualcomm's $110 all-cash offer per share had been dwindling steadily from a peak in early March. So what's new? Let's have a look.
By the numbers
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When NXP shareholders commit their stubs to Qualcomm's offer, there's nothing terribly permanent about that commitment. Tendered shares may be withdrawn at any time, and there has frankly been a lot of that going on here.
That's more than a slow drain. I'm tempted to call it a plunge. NXP shareholders are backing down from this tender offer by the truckload.
What's going on?
Qualcomm tends to use these tender-offer renewal statements as a convenient platform for sharing other updates on the NXP buyout process, such as new regulatory approvals, or at least a roll call of the remaining hurdles. Not this time, and I find that telling because Qualcomm's offer has actually been in hot water since the last tender update.
The European Commission launched an investigation of this deal's potential anticompetitive effects, then took that effort to the next level by pausing its investigation until further notice. The regulators are waiting for Qualcomm to provide more information about its post-merger business plans, and those intentions had better not include any distasteful cross-selling efforts to trip up competitors in NXP's and Qualcomm's respective wheelhouse markets.
Qualcomm has been accused of anticompetitive sales tactics in venues around the world and found guilty to the tune of billions of dollars. Sucking NXP into a similar attitude could damage other European (and American, and Korean, and...) chip companies in key industries like automotive computing and Internet of Things networking.
The deal isn't moving forward until NXP and Qualcomm can soothe the Commission's fears, which might include a few concessions. The investigation could lead to Qualcomm and/or NXP shedding a couple of key units before tying the knot, and I fully expect to see some additional reporting requirements tossed into the mix.
The opportunity cost of owning NXP
In the meantime, NXP shares have been frozen at roughly $110 for months, while the rest of the very healthy chip market marched on. For example, occasional head-to-head rival STMicroelectronics has seen its share price more than double since last October, and even stodgy old Texas Instruments has gained more than 17%. But NXP investors had to settle for an 8% gain, with no further improvement in sight.
I used to think that the deal price was written in stone, but this exodus of tendered shares is telling me otherwise. NXP shareholders are uniting behind activist investor firm Elliot Management's demand for a higher price, and Qualcomm just might have to cough up a few more billion dollars in order to close this game-changing deal.
Qualcomm is still highly motivated to make this deal work. It's just going to be a little more difficult than originally planned, and maybe more expensive, as well.
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