What's going on?
Things are hotting up for chipmaker Qualcomm’s proposed takeover of rival NXP as Elliott Management, an activist investor, released a report claiming NXP is worth much more than what Qualcomm has agreed to pay.
What does this mean?
About a year ago, NXP’s management agreed to sell to Qualcomm for $110 per share. But NXP is a Dutch company, and under Dutch law 80% of shareholders must agree to the takeover. Elliott, which owns 6% of the shares, is arguing that NXP is worth at least $135 per share. For starters, most chipmakers’ stock prices have shot higher this year while NXP’s is, in Elliott’s words, being held down by the Qualcomm bid. The deal has been delayed while various competition authorities did their thing, but the green light now seems imminent. Crunch time is coming: either NXP’s shareholders sell at the the original price, Qualcomm gets bullied into coughing up more greenbacks – or, in a distinct possibility, everyone simply walks away.
Why should I care?
For markets: NXP’s share price suggests the deal will not get done on the proposed terms.
NXP’s shares are trading at more than $116, meaning that someone buying the stock today would lose money if the deal went through at the original price. The market seems to think there’s a decent chance that either the deal will fall apart and NXP will be valued higher as a standalone company, or that Qualcomm will agree to raise its bid.
The bigger picture: Broadcom’s recent attempt to take over Qualcomm is muddying the waters.
Qualcomm’s management recently rejected an attempt by another competitor, Broadcom, to acquire Qualcomm. Despite the rejection, Broadcom could still convince Qualcomm’s shareholders to sell the company in a so-called hostile takeover. Broadcom would likely be royally ticked off if Qualcomm agreed to pay more for NXP – as such, even if Qualcomm’s management were prepared to do so, it may be too risky a move for its shareholders.