The Qualcomm Merger Does Not Make NXP Semiconductors a Buy Anymore

NXP Semiconductors (NASDAQ: NXPI) is knee-deep in a pending merger with sector rival Qualcomm (NASDAQ: QCOM). There was a time when it would have made sense to pick up NXP shares, even if you missed the 25% buyout surge in September.

But those days are gone, and there's no real reason to buy -- or even hold -- NXP shares today.

Let me explain why.

Image source: NXP Semiconductors.

What's going on?

In January, you could have picked up NXP shares for as little as $96 per share. With Qualcomm's all-cash buyout offer of $110 per share on the table, that would have been an attractive alternative to market-tracking mutual funds or exchange-traded funds. It's not often you get a clear look at 15% return in less than 12 months, but that's what we had back then. That's assuming that the deal would waltz through regulatory approvals and shareholder votes, of course.

But things have changed.

In January, investors worried that the Trump administration might block this $47 billion deal -- either deliberately or by accident. The president's relations with China seemed unstable, and either side might have shut down the NXP-Qualcomm deal for a variety of reasons.

That's not the case anymore. Trump has changed his stance on Taiwan's status, Chinese connections have cooled down considerably, and there's no longer any reason to expect anybody closing the door on this deal out of spite or diplomatic neglect.

So NXP's share prices climbed as soon as Trump started to mend his Chinese fences, and the stock now sits just 6% below the promised buyout value of $110 per share. With about nine months left to go before the deal is expected to close, that works out to an annualized return of roughly 8%. Better than modern savings accounts, sure, but hardly a superior alternative to S&P 500 or Dow Industrials trackers.

What to do with NXP shares today

The only reason to buy new NXP shares today, or to hang on to existing positions by tooth and nail, would be if you expect the merger to fail -- freeing NXP to reach values beyond $110 per share on its own.

Even then, you would probably get at least a few days to pick up NXP shares at a deep discount after the merger is canceled. That limits the case for buying today even further. Only do it if you see the merger falling apart, but NXP will do better on its own anyway -- and you can't be expected to pounce on the inevitable price drop that follows nearly every canceled merger agreement.

In all other cases, taking NXP profits off the table lets you find better investments elsewhere these days. Owning NXP doesn't make any sense right now.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Qualcomm. The Motley Fool recommends NXP Semiconductors. The Motley Fool has a disclosure policy.