Qualcomm offers concessions over $38bn NXP offer

December 2017 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

December 2017 Issue

In an attempt to assuage EU antitrust concerns over its proposed $38bn acquisition of NXP Semiconductors, US multinational semiconductor and telecommunications equipment company, Qualcomm, has offered to make concessions over the deal.

Originally announced in October 2016, the transaction – which when or if completed would be the largest ever seen in the semiconductor industry – is expected to generate annual revenues of more than $30bn, serviceable addressable markets of $138bn in 2020 and leadership positions across mobile, automotive, Internet of Things (IoT), security, radio frequency and networking.

A leading semiconductor company, Qualcomm develops and supplies integrated circuits for mobile devices, notably cellular baseband chips. The company also licences the rights to its intellectual property portfolio, including rights to patents which are essential to the implementation within wireless production of cellular communication standards.

In comparison, NXP Semiconductors manufactures and sells different categories of semiconductors, including for the automotive sector and for the mobile device sector.

“With innovation and invention at our core, Qualcomm has played a critical role in driving the evolution of the mobile industry,” said Steve Mollenkopf, chief executive of Qualcomm Incorporated (Qualcomm’s parent company), last year. “The NXP acquisition accelerates our strategy to extend our leading mobile technology into robust new opportunities, where we will be well positioned to lead by delivering integrated semiconductor solutions at scale.”

Qualcomm has stated that it intends to fund the transaction with cash on hand and new debt.

Mr Mollenkopf continued: “By joining Qualcomm’s leading security operations centre 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 realise all the benefits of the intelligently connected world.”

However, concerned that the transaction could lead to higher prices, less choice and reduced innovation in the semiconductor industry, the European Commission (EC) opened an in-depth investigation to assess the acquisition. “We use our electronic devices every day – mobile phones or tablets,” said commissioner Margrethe Vestager, in June. “As semiconductors are used in practically every electronic device, we are dependent on them in those devices. With this investigation, we want to ensure that consumers will continue to benefit from secure and innovative products at competitive prices.”

The EC’s main concerns are that the merger of Qualcomm and NXP would mean the new entity would: (i) hold strong market positions and have the ability and incentive to exclude rival suppliers from these markets through practices such as bundling or tying; (ii) have the ability and incentive to modify NXP’s current intellectual property licensing practices (the EC has stated that it will investigate whether such conduct could lead to anticompetitive effects, such as increased royalties for customers or exclusion of competitors); and (iii) would remove competition between companies active in the markets for semiconductors used in the automotive sector and, in particular, in the emerging vehicle-to-everything (V2X) technology, which will play an important role in the future development of ‘connected cars’.

The EC’s deadline to make a decision was delayed in August while it awaited information from Qualcomm. Following Qualcomm’s offer of concessions, the details of which were not disclosed, the EC said it would set a new deadline.

Speaking last year, Rick Clemmer, NXP chief executive, said: “United in a common strategy, the complementary nature of Qualcomm and NXP technologies and the scale of our portfolios will give us the ability to drive an accelerated level of innovation and value for the whole ecosystem. Such a strong fit will bring opportunities for our employees and customers, as well as provide immediate attractive value for our shareholders, in creating the semiconductor industry powerhouse.”

Fraser Tennant