With just two days to go until shareholders of Qualcomm Inc. (NASDAQ: QCOM) and NXP Semiconductors N.V. (NASDAQ: NXPI) must vote on a $40 billion merger between the two companies, the prospects have dimmed that the deal will happen. In order for the merger to have a chance, China’s competition regulators need to approve the deal by Wednesday or Qualcomm’s offer for NXP expires.
China is the only holdout among nine nations that had to review the effects on competition if the acquisition were to go through. In April, Qualcomm and NXP agreed to extend an April 25 deadline to July 25. That agreement resulted from a decision President Trump made to relax sanctions against Chinese smartphone maker ZTE.
Then, of course, Trump started making noises about tariffs, and trade relations between China and the United States deteriorated quickly. All Beijing needs to do now is nothing and the Qualcomm-NXP deal is finished and the U.S.-based firm will pay the $2 billion breakup fee.
Since first announcing its offer for NXP in October 2016, Qualcomm has gotten entangled in a nasty dispute with Apple over royalty payments and had itself to fend off a hostile takeover offer from Broadcom.
Congress tried to block the president’s decision to soften the sanctions against ZTE, but last week both the House and the Senate caved in. Will that be enough to change China’s mind?
Given Trump’s desire to slap tariffs on all $505 billion worth of Chinese imports into the United States, it seems doubtful that China is going to be willing let ZTE bygones be bygones. The stakes are much higher now and China is talking about such things as currency devaluation and further restrictions on cash flows in and out of the country. So far this year the Chinese yuan has lost 4.4% against the dollar. A weaker yuan makes Chinese exports less expensive.
The odds that the Qualcomm-NXP deal will get China’s blessing and be completed are approaching zero. There are some who don’t think that is altogether a bad thing considering that the Apple dispute is now in the courts. That and the fact that Qualcomm has expanded its business outside the smartphone sector on its own make the NXP deal and the debt that it will bring on a less compelling story for investors.
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