Late on Wednesday, Qualcomm Inc. (QCOM) officially abandoned its nearly two-year-old $44 billion bid to buy Dutch rival NXP Semiconductors NV (NXPI). The failed deal came as Chinese regulators let the deadlines for approval pass without signing off.
The mega-merger would have been the largest semiconductor acquisition in history, yet as trade tensions between the U.S. and China escalated over the past few months, any cooperation that may have materialized faded away. Despite the mounting trade conflict between the White House and Beijing, Gao Feng, China's commerce ministry spokesman, said in a briefing Thursday that the decision was about market monopoly and not trade. NXP Chief Executive Officer Richard Clemmer wasn't convinced, criticizing the deal's collapse as a "purely political decision."
Clemmer indicated that "uncertainty will keep us from doing such a deal in the near future." NXP will repurchase $5 billion of shares and plans to unveil a new strategy at its analyst day in mid-September. After climbing over 60% since February 2016, NXP stock is down 5.3% on Thursday. (See also: NXP Faces More Steep Declines Without Qualcomm.)
China Refusal a 'Red Light' for Further Semi Deals
As for Qualcomm, whose shares are up nearly 6% Thursday afternoon, the firm must shell out a previously agreed $2 billion termination fee. In order to appease investors, the chipmaker has announced a $30 billion share buyback program. While the firm's prospects for global M&A in the Chinese market are slim after the loss of the NXP deal, CEO Steve Mollenkopf says Qulacomm's "core strategy of driving technologies into higher growth industries remains unchanged."
Qualcomm was seeking to build out its product portfolio with NXP at a critical time when the firm is under legal assault around the world for allegedly anti-competitive patent licensing practices, as noted by The Verge. While the chipmaker maintains a lead in the mobile processor and modem space, it has sought to double down on the high-flying Internet of Things (IoT) and automotive markets in which NXP specializes.
China's refusal to approve the Qualcomm NXP deal could signal "a red light for any big M&A in the semiconductor industry in the short term" analyst Geoff Blaber told the Financial Times. According to Gartner, worldwide semiconductor revenue will exceed $51 billion in 2018, reflecting a 7.5% gain from $419 billion last year. (See also: Qualcomm Is a ‘Value Play’ in Tech Turmoil.)