UPDATE 4:07 PM – QCOM has officially terminated its offer to buy NXPI!
Qualcomm, Inc. (NASDAQ: QCOM) may be on the hook to pay a large chunk of money and it could all be the result of the trade war. That’s because QUALCOMM is under contract to acquire NXP Semiconductors NV (NASDAQ: NXPI) and that contract expires tonight at midnight. Unfortunately, there’s one hang up, leading to a fairy tale like fate that neither QCOM nor NXPI have any control over.
The QCOM Acquisition Of NXPI
On October 27, 2016, Qualcomm announced that it would be acquiring NXP Semiconductors. In the release, investors learned that the deal would be valued at approximately $47 billion and that the company would be paying $110.00 per share in an all cash transaction for the acquisition. However, as with any announcement of an acquisition of a publicly traded company, it was also announced that the transaction would be subject to customary closing condtions.
These customary closing conditions include regulatory approvals, and there were many needed. In fact, for the QCOM/NXPI acquisition to take place, the companies would need approvals from regulatory bodies in 9 different countries, and it needed them in a reasonable amount of time. In fact, the definitive agreement surrounding the acquisition gave until today, July 25, 2018 at 11:59 PM for the comapies to close the deal. Should the deal not close, the agreement would be terminated.
This Is Where China Comes In
So far, NXPI and QCOM have done a decent job of getting approvals. In fact, they have received regulatory approval for the acquisition to take place in 8 out of the 9 countries needed. Unfortunately however, there is a bit of a hang up in the 9th country, China.
At the end of the day, China may see this as a direct opportunity to hit the United States where it hurts in the midst of a trade war. The two biggest and most active players in the trade war are the United States and China, both of whom have been slinging mud at each other since the very beginning.
We all know that Qualcomm is an American company, and when we dig into the acquisition agreement, we see that if the deal doesn’t go through, the company will be hit where it hurts. The agreement dictates that should the acquisition not take place for any reason, Qualcomm will have to pay a rather hefty breakup fee. In fact, the company will be forced to pay a fee in the amount of $2 billion, and not get anything in return for that cash. That amounts to throwing away more than 5% of the cash the company has on hand in exchange for nothing. So should China delay the approval of the acquisition past today, the country’s regulatory authorities would be hitting a United States company where it hurts, the pocket book.
The QCOM acquisition of NXPI is just the most recent example of how damning the continued trade war can become. The reality is that while the war was incyted as a protectionist move to assist American companies in a global commerce environment, what is actually happening is the exact oposite in many cases. In fact, if China holds up the decision and costs QCOM $2 billion, it will be a glowing example of just how badly the affect on American companies can become.