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Qualcomm-NXP Deal Should Be Cleared by Regulators, but Activists Could Make Things Interesting

by Rosemary Mays (2019-09-19)

Qualcomm-NXP Deal Should Be Cleared by Regulators, but Activists Could Make Things Interesting
Seven months after Qualcomm (QCOM - Get Report) and NXP Semiconductor (NXPI - Get Report) announced that the former is buying the latter for $47 billion in cash and assumed debt, it's still far from clear exactly when the deal will close, and on what terms. Ongoing regulatory reviews are partly responsible for this, as are grumblings by NXP investors who feel that the Dutch chipmaker now deserves a higher sale price.

The regulatory reviews are unlikely to yield major objections to the tie-up, given the limited overlap between Qualcomm and NXP's product lines. But an NXP investor push for a higher price could very well pay off, given who appears to be supporting it and everything that has transpired since October.
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On Friday morning, the European Commission said Qualcomm hasn't offered any concessions to help the deal clear a preliminary review that ends on June 9. If the EC doesn't clear the deal unconditionally by that date, there will be an extended review that could last up to four months.

Sources tell Reuters that NXP rivals want guarantees that they'll be able to continue using NXP's Mifare technology. Mifare is used by NXP microcontrollers that have gone into billions of smartcards--used to do things like enter subway stations, gain access to buildings and make loyalty card transactions--along with millions of smartcard readers. It's also used by the NFC radios built into smartphones to support Mifare-based services, and has been licensed by SIM card leader Gemalto and NXP rival STMicroelectronics (STM - Get Report) , among others.
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Since it would only involve a commitment to maintaining the status quo, and since NXP's smartcard chip business has been doing quite well under this status quo, guaranteeing third-party Mifare access will continue doesn't seem like the kind of concession that Qualcomm would be deeply reluctant to give, if pressed on the matter.

And it's also not likely that regulators will push for major asset sales in order to approve the deal, given how complementary Qualcomm and NXP's product lines are. There is some overlap between the companies' automotive processor offerings, but this is a highly competitive market featuring Nvidia (NVDA - Get Report) , Intel (INTC - Get Report) and several other chipmakers.
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There is a bit of risk that recent regulatory probes of Qualcomm's licensing practices, which have partly been related to the links between its chip and IP licensing businesses, could slow approval. But unlike Qualcomm's mobile processor/modem business, NXP's main product lines don't use Qualcomm's core 3G/4G cellular IP. A commitment not to let cellular licensing deals and negotiations impact either the supply of NXP products or the licensing rights currently passed on by using them should be palatable for both sides.
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Regulatory reviews of the deal could still take a while to play out. In addition to the EC, regulators in South Korea, Japan and elsewhere still have to render judgment (U.S regulators approved the deal in April). But that's par for the course for a deal of this size.
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