Qualcomm’s $44 billion NXP offer deadline passes, no word from China

Business

SAN FRANCISCO/BEIJING (Reuters) – The deadline for Qualcomm Inc (QCOM.O) to buy NXP Semiconductors (NXPI.O) passed at midnight U.S. eastern time without any word on Chinese regulatory approval, likely shutting the door on a deal embroiled in a bitter U.S.-China spat.

Qualcomm had said earlier in the day that it would drop its $44 billion bid for NXP – the world’s biggest semiconductor takeover – unless it received a last minute reprieve. If the deal is terminated, Qualcomm will pay a $2 billion deal breakup fee to NXP no later than 09:00 ET on July 26.

There was no word from China’s State Administration for Market Regulation or Qualcomm after the time for the deal to expire passed. Qualcomm did not immediately respond to a request for comment.

Investors expressed relief at Qualcomm’s comments earlier in the day and the company’s shares rose nearly 7 percent in after market trading. The San Diego chipmaker delivered surprisingly strong third-quarter results and a rosy outlook for so-called 5G technology, the next generation of wireless data networks.

The company also said earlier on Wednesday that it will buy back $30 billion in shares if the deal ultimately failed, making good on a promise to reassure investors about its prospects.

Qualcomm still faces challenges, including expectations that its chips will not be in the next round of Apple’s iPhones and the need to find new markets beyond mobile phones without NXP’s help. But it cited progress on one of two major patent royalty conflicts, thought to be with Chinese phonemaker Huawei Technologies Co Ltd [HWT.UL], in the form of a $700 million interim agreement.

The collapse of the deal may discourage other U.S. firms hoping to buy into China’s huge developing markets and companies, although technology deals seemed the main concern.

“We obviously got caught up in something that was above us,” Qualcomm Chief Executive Steve Mollenkopf said in an interview after the announcement earlier in the day.

“We think moving on, reducing the amount of uncertainty in the business and increasing the focus is the right thing to do with the company.”

Qualcomm needed approval from China, the last of nine global regulators to be consulted, because the country accounted for nearly two-thirds of its revenue last year.

FILE PHOTO: A sign on the Qualcomm campus is seen in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake

Barring a last-minute reprieve, the chipmaker said in its results release it would make good on a pledge with NXP to call off the merger if it had not won Chinese regulatory approval by 23:59 Eastern U.S. time on Wednesday.

NXP Semiconductors shares fell almost 4 percent to $94.50.

TRUMP’S ROLE

Moves by the Trump administration have played an outsized role in Qualcomm’s fate, and there had been expectations that the lifting of a ban on U.S. chipmakers doing business with China’s ZTE Corp (000063.SZ) would clear the way for the NXP deal.

Dealmakers advising on mergers and acquisitions hoped the fallout would be limited to the technology sector in which China is racing for primacy against the United States.

United Technologies Corp (UTX.N) chief Gregory Hayes said earlier this week that the industrial conglomerate was on track with regulatory approvals to close its $23 billion acquisition of U.S. airplane-parts maker Rockwell Collins Inc (COL.N), seeking to quell fears that China could delay its review.

No other major semiconductor deal is pending. Broadcom, whose $117 billion hostile bid for Qualcomm was blocked by the United States in March on national security grounds, says its $19 billion purchase of U.S. software company CA Technologies (CA.O) does not require China’s blessing.

For Qualcomm, the deal’s demise means it will have to focus on expanding beyond making mobile chips.

Qualcomm predicted on Wednesday that Apple would drop the company’s chips from its next-generation iPhones in favor of modems from Intel Corp (INTC.O), the latest sign of fallout from their acrimonious battle over pricing and licensing costs. Qualcomm’s revenue projections had already assumed it would gain no new revenue from Apple.

Intel and Apple both declined to comment.

Qualcomm sold $3 billion of chips last year for non-phone use, up 75 percent from two years ago. It has a $5 billion “backlog” of chip sales to the automotive industry, in which NXP is also a dominant player, it said.

Reporting by Michael Martina in Beijing and Greg Roumeliotis in New York; Additional reporting by Adam Jourdan and Ben Blanchard in Beijing; Writing by Patrick Graham and Sayantani Ghosh; Editing by Meredith Mazzilli, Richard Chang and Muralikumar Anantharaman

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