Blog Coverage Qualcomm to Acquire NXP Semiconductors

Bets Big on “Internet-Of-Things” and Expands Presence in Auto Sector

LONDON, UK / ACCESSWIRE / October 28, 2016 / Active Wall St. blog coverage looks at the headline from QUALCOMM Inc. (NASDAQ: QCOM) as the company announced on October 27, 2016, the decision to acquire NXP Semiconductors N.V. (NASDAQ: NXPI) in an all cash deal. The total enterprise value of the deal is approximately $47 billion. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

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Terms of Agreement

As per the agreed terms, one of Qualcomm’s subsidiaries will acquire all outstanding shares of NXP Semiconductors (“NXP”) via a tender offer. It will pay $110 per share in cash to the NXP’s shareholders. Qualcomm plans to finance the deal using a mix of cash in hand as well as fresh debt. The tender offer is not subject to any financing conditions. However, the tender document stipulates that Qualcomm should manage to acquire at least 95% of outstanding shares of NXP or at least 80% of shares of NXP in case it gets shareholders’ approval of the tender conditions. The deal is expected to close by end of year 2017 subject to fulfilment of statutory approvals and regulations.

Commenting on the acquisition, Steve Mollenkopf, CEO of Qualcomm, said:

“By joining Qualcomm’s leading SoC capabilities and technology roadmap with NXP’s leading industry sales channels and positions in automotive, security and IoT, we will be even better positioned to empower customers and consumers to realize all the benefits of the intelligently connected world.”

Benefits for Qualcomm

Financial Benefits

The merged Qualcomm/ NXP entity is expected to have revenues of over $30 billion annually. The transaction will add significantly to Qualcomm’s adjusted earnings after the close of the deal. Qualcomm expects $500 million in terms of cost synergies annually within two years of the deal’s closure. Qualcomm expects the transaction to be significantly accretive to non-GAAP EPS on finalization of the deal. The deal is structured in such a manner that Qualcomm can get maximum tax benefit by using the offshore cash flow. Also since the deal is through the subsidiary, using cash in hand and fresh debt, Qualcomm’s balance sheet will continue to remain strong.

Other Benefits

Qualcomm is the 3rd largest semiconductor company in the world with revenues around US$27 billion. Qualcomm’s primary revenue is from sale of customised chips for smartphones and patent licensing agreements. It has been looking at new opportunities for growth and revenues due to the slowdown in the smartphone market and cutthroat competition from Chinese and Taiwanese manufacturers. NXP on the other hand is a market leader in Automotive, Internet of Things, Security and Networking. The merger with NXP will allow Qualcomm to gain a foothold in these lucrative segments. NXP had acquired Freescale Semiconductors in March 2015 and had become a one stop shop for automotive intelligence. It also manufactures specialized chips for radio applications, near field communications (NFC), i.e. technology required for stuff like payments using mobile phones (Andriod Pay, Apple Pay etc.) and keyless car door unlocking etc. On completion of the deal, Qualcomm gets access to NXP’s seven factories, located in the five countries that manufacture silicon chips, and seven facilities, that package and test chips before they are installed.

With the acquisition, Qualcomm will grow from a chip manufacturer to a diversified company which offers products including microcontrollers, discrete components and logic, power management, RF, sensors and automotive products. The big bet is on the driverless technology where NXP has a wide range of products including advanced driver assistance systems (ADAS), access, infotainment, in-vehicle networking, body, chassis and safety applications.

Stock Performance

On Thursday, Investors were enthusiastic about the Qualcomm/ NXP merger which reflected on the stock performance. QUALCOMM’s stock closed the trading session at $70.09, climbing 2.77% from its previous closing price of $70.09. A total volume of 33.92 million shares have exchanged hands, which was higher than the 3-month average volume of 8.74 million shares. The company’s stock price advanced 10.46% in the last month, 12.95% in the past three months, and 41.26% in the previous six months. Furthermore, since the start of the year, shares of the company have surged 44.10%. The stock is trading at a PE ratio of 20.55 and has a dividend yield of 3.02%.

NXP Semiconductors’ share price finished yesterday’s trading session at $99.08, slightly up 0.43%. A total volume of 36.61 million shares exchanged hands, which was higher than the 3 months average volume of 4.17 million shares. The stock has advanced 17.83% and 16.18% in the last three months and past six months, respectively. Furthermore, since the start of the year, shares of the company have gained 17.60%. The stock is trading at a PE ratio of 25.64 and currently has a market cap of $35.22 billion.

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