In a press release, Qualcomm said the tender offer is now slated to expire March 7. The mobile chipmaker said in a press release that it is extending the offering period to purchase all of the outstanding common shares of NXP.
In October Qualcomm announced it was buying NXP for $110 a share in an all-cash deal valued at $47 billion. NXP is the biggest supplier of chips in the automotive industry and serves more than 25,000 customers through its direct sales channel and global network of distribution channel partners. The combined company is expected to have annual revenues of more than $30 billion and Qualcomm expects to generate $500 million of annualized run-rate cost synergies within two years after the transaction closes. The transaction is expected to close by the end of the year.
For Qualcomm, the acquisition is seen as a much needed way to diversify beyond the handset market which is becoming saturated. But there are concerns that the deal may not pass regulatory scrutiny in light of antitrust lawsuits lodged against Qualcomm both from Apple Inc. (AAPL) and the Federal Trade Commission. Both of those actions come after moves by the South Korean Fair Trade Commission (KFTC), which also charged it with engaging in anti-competitive behavior, slapping it with the highest fine ever levied by the agency.
Concerns Abound About Deal
While investors have taken past antitrust suits against Qualcomm by other countries in stride, concerns are mounting that its acquisition of NXP and its royalty revenue is at risk. (See also: Qualcomm Calls Apple’s Lawsuit ‘Baseless’.)
Take Instinet analyst Romit Shah, who recently downgraded shares of Qualcomm to neutral from buy and cut his price target to $70 a share from $80 a share. He said the regulatory scrutiny hurts the chances of the NXP deal going through. “It seems inconvenient that, amid increased scrutiny into QTL (Qualcomm’s licensing business), Qualcomm requires regulatory approval for the NXPI acquisition from many of the same countries where it has outstanding regulatory complaints/litigations,” Shah wrote in a research report covered by Barron’s. He said it's logical to think the regulatory agencies in the U.S., Europe and Asia could take longer to approve the deal.
While Qualcomm is getting hit with a lot of fines, it's not the size that is concerning investors, it is the chipping away of patent portfolio revenue that’s creating a sense of unease. Qualcomm uses the patent licensing money to fund new products and could face a double whammy if royalties get reduced. When Qualcomm settled the antitrust case in China, companies that paid licenses got a reduction in the rate. Samsung Electronics, among Qualcomm’s largest customers, is also a leading company in South Korea that could benefit from the ruling from the KFTC.