UNXPected Developments In Chipmaking Love Triangle

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What's going on?

Things are hotting up for chipmaker Qualcomms 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, NXPs 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 NXPs is, in Elliotts 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 NXPs 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: NXPs share price suggests the deal will not get done on the proposed terms.

NXPs 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 theres 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: Broadcoms recent attempt to take over Qualcomm is muddying the waters.

Qualcomms management recently rejected an attempt by another competitor, Broadcom, to acquire Qualcomm. Despite the rejection, Broadcom could still convince Qualcomms 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 Qualcomms management were prepared to do so, it may be too risky a move for its shareholders.

Originally posted as part of the Finimize daily email.

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