NXP Semiconductor (NASDAQ: NXPI) looked as though its buyout offer from Qualcomm (NASDAQ: QCOM) would finally get China’s blessing. But politics are getting in the way of that. NXP’s value without Qualcomm may be over $130 but a deal falling through would also send the stock to $100 or so. For now, NXPI will not get to the $127.50 fair value until the trade wars de-escalate.
U.S. President Trump wanted the government to accept ZTE’s penalties, which include billions in fines. But the Senate effectively blocked the settlement with ZTE. This forces China to delay its decision on allowing Qualcomm to buy NXP. Qualcomm still has time to wait: it extended the buyout offer deadline. Yet the absolute deadline in July is getting closer. If China still does not approve the deal (and the U.S. continues to prevent a ZTE settlement), Qualcomm could end the buyout offer but pay $2 billion to NXP.
It is in everyone’s interest that QCOM gets NXPI. China wants ZTE’s business to resume while the U.S. wants penalties levied against the firm. The amount ZTE would pay is not a trivial amount: It would take three years of operations for the firm to pay back the penalty.
Takeaway
NXP has deep value without Qualcomm buying it but as a strategic asset for Qualcomm, it also lifts its buyer’s relevance in the wireless space.
Tech Insider
