In fall 2016, Qualcomm (QCOM) announced the $44 billion acquisition of Netherlands-based NXP Semiconductors (NXPI) — an enormous deal with implications around the globe.
San Diego-based Qualcomm made its name as a key supplier to Apple and other smartphone manufacturers. But, as the smartphone market became more and more saturated, companies like Apple began trying to lessen their reliance on suppliers like Qualcomm.
Qualcomm’s growth naturally stagnated as Apple and other smartphone makers deemphasized its products and services. Further complicating matters were legal issues between Qualcomm and Apple, which continue today and will likely extend for years.
By purchasing NXP, Qualcomm would enjoy a new presence in growth industries. NXP works with NFC chips, microcontrollers, the Internet of Things, and the automotive sector. The deal would also give Qualcomm a head start on developing 5G technology. If approved, the deal would allow Qualcomm to maintain its presence in the stagnating smartphone market while also exploring growth opportunities.
The closing of the deal wouldn’t be simple, though. In fact, it would require approval from 9 separate regulatory jurisdictions: the United States, Mexico, the Philippines, Japan, Taiwan, South Korea, China, the European Union and Russia.
Many of the jurisdictions provided approval in 2017. In January 2018, the European Union and South Korea approved the deal as well — leaving China as the last regulatory body that needed to sign off.
Trump’s Trade War Complicates the Acquisition
Gaining approval from the Chinese government would prove more challenging, though. China is the largest semiconductor market in the world, and its initial concerns about the deal ostensibly centered on protecting its own semiconductor companies. In short, China was at first worried about post-acquisition Qualcomm enjoying an unfair advantage.
Then, in the months after Qualcomm earned approval from the European Union and South Korea, President Trump and the United States entered into a trade war with China. The trade war started with the U.S. placing tariffs on steel and aluminum imported from certain countries — China included. The Chinese responded by placing its own tariffs on pork and apples.
While a trade war involving steel, aluminum, pork and apples may seem irrelevant to the semiconductor industry, Qualcomm found itself drawn into the back-and-forth as the trade war escalated.
The U.S. Department of Commerce responded to China’s pork and apple tariffs by placing a 7-year ban on selling American goods to ZTE, a Chinese phone equipment manufacturer. In response, China’s Ministry of Commerce issued a negative review of Qualcomm’s NXP acquisition — putting in doubt the deal’s ultimate success.
As the trade war raged, Qualcomm was also dealing with a hostile takeover bid from Broadcom (AVGO), a Singapore-based semiconductor company. The United States officially blocked Broadcom’s efforts in March 2018, citing the possibility that the takeover would clear the way for Chinese company Huawei to take the lead in developing 5G technology.
These developments only muddied the waters and made talks between Qualcomm and the Chinese more complicated. Given just how complicated the deal had become, any investors interested in the Qualcomm-NXP deal would need additional sources of information that might more reliably signal the success or failure of the acquisition.
JetTrack Monitors Qualcomm’s Visits to Beijing
As Qualcomm and its leadership team sought approval from the 9 regulatory jurisdictions around the world, it was only natural to visit regulators in their home countries and regions. After the European Union and South Korea gave approval in early 2018, Qualcomm executives began spending a disproportionate amount of their time in Beijing. JetTrack’s database includes 4 Qualcomm flights to Beijing in 2018:
Several of these flights align with important announcements and decisions made by the Chinese government, other regulatory bodies and Qualcomm. For example, the Jan. 23 flight is less than a week after the European Union and South Korea provided approval, indicating that Qualcomm wanted to act quickly in securing the final approval needed.
Also, as China continued to withhold approval, Qualcomm extended its cash tender offer for NXP shares on March 23. The very next day, Qualcomm executives landed in Beijing to spend the week. The new cash tender offer would expire on April 2, and it appeared that Qualcomm leadership again wanted to waste no time in securing the needed approval.
As March turned to April, Qualcomm was also battling the deadline on its Chinese antitrust application. The application would expire on April 17, and Qualcomm executives made yet another flight to Beijing on April 10 — just one week before the deadline.
The 2 parties apparently made process during the April 10 meeting. On April 14, Qualcomm announced that it would withdraw its antitrust application at the request of the Chinese government and then re-file so that the two parties might continue their negotiations.
Use JetTrack to Follow Qualcomm’s Progress
The success of Qualcomm’s NXP acquisition is essential to the company’s long-term success and the returns enjoyed by each organization’s shareholders. The ultimate closing of the deal would return Qualcomm to a path of growth, and it would also deliver potential double-digit returns for investors.
Conversely, the failure of the deal would be devastating to both Qualcomm and its shareholders. This is an acquisition that represents huge monetary value as well as significant future opportunity. Also, Qualcomm to this point has invested nearly 2 years of time and effort into closing this acquisition — and all of that time and effort would go for naught if the Chinese refuse to provide approval.
Using JetTrack, an analyst can see in real-time Qualcomm’s intention and commitment to the acquisition. China’s reciprocal interest and willingness to talk and negotiate are additional key insights revealed by JetTrack’s database.
As talks between the Chinese government and Qualcomm continue, JetTrack can be the tool that gives analysts unique information about the progress of negotiations, allowing investors to make the right plays ahead of important deadlines.
Contact us to learn more about using JetTrack for your research.