After a number of extensions of its tender offer and a significant increase in its offer price, Qualcomm may finally be moving closer to purchasing NXP. A Beijing official reportedly told The Wall Street Journal that the deal is "looking more optimistic now." The comments helped send NXP shares up more than 4% on Friday.
Qualcomm's offer to buy NXP expires May 25, and will probably be extended once again. Today, the company offered to repurchase debt it had issued to finance the acquisition. Qualcomm said that while it still hopes to buy NXP, it has to repurchase the debt because the notes contain provisions that require Qualcomm to repurchase them if the deal has not closed by June 1.
The acquisition would help Qualcomm expand its wireless chip business to encompass more internet of things applications, especially in the automotive space. NXP became the world's largest maker of automotive chipsets through its almost $12 billion purchase of Freescale in late 2015. Less than a year later, Qualcomm offered to buy NXP for $38 billion, an offer that it later increased to $44 billion. The purchase was approved by regulators in the U.S. and Europe, but China's Ministry of Commerce has yet to give it a green light.
"It is clear that the geopolitical environment and trade actions are having an impact,” Qualcomm’s CEO Steven Mollenkopf told investors during the company's most recent earnings call.
Geopolitics and trade tensions have impacted several companies in the wireless industry this year, including Broadcom, which tried hard to buy Qualcomm and was willing to take on NXP as well. The deal was ultimately blocked by the Trump administration because of concerns that Broadcom would sell or underfund Qualcomm's 5G research, handing China's Huawei the lead in 5G.
More recently, the U.S. Commerce Department slapped China's ZTE with sanctions that prevent U.S. companies from doing business with the smartphone and network equipment maker. ZTE, which relies heavily on U.S. chips and components and also sells many finished products in the U.S. market, said it would suspend its major operations due to the ban. Now, the ZTE ban is apparently back on the table as negotiators from the U.S. and China try to hammer out a trade agreement that works for both sides.
Qualcomm's offer for NXP appears to be another bargaining chip. Indeed, recent reports suggest China may be ready to approve the deal and offer other concessions as well in exchange for an end to the ZTE sanctions.
For Qualcomm, the opportunity to move forward with the NXP deal would give the chipmaker more than an entry into important new markets. It would also increase the overall size of the company, making it harder for former board chairman Paul Jacobs to move forward with a hostile bid to take Qualcomm private. Jacobs, who is the son of Qualcomm co-founder Irwin Jacobs, is reportedly talking to investors in an effort to line up financing for his proposed leveraged buyout.