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Qualcomm Ended NXP Acquistion After Failing To Secure Chinese Approval (cnet.com)

Posted by BeauHD on from the better-luck-next-time dept.

hackingbear writes: Qualcomm officially terminated the deal to buy Dutch semiconductor giant NXP after failing to get a decision from regulators in China by its deadline. It must now shell out a previously agreed upon $2 billion termination fee. The Chinese market accounts for 30% of Qualcomm's revenue. China's refusal of the approval can also be a retaliation against an $1.4 billion penalty against ZTE imposed by the U.S. Department of Commerce over technicalities of ZTE's violation of Iran sanctions, a move viewed by China as a U.S. excuse to launch a trade war. "It's a reminder that trade wars are maybe not that easy to win," says Steven Roach of Morgan Stanley. "And China has a lot of ammunition up its sleeve." Roach urged the Trump administration to understand that the U.S. and China "need each other," saying low-price Chinese imports are needed to "make ends meet" for cash-strapped Americans. Separately, in a hearing at the Office of United States Trade Representative for imposing additional tariffs on Chinese imports due to the alleged intellectual property theft by China, an accusation that the U.S. itself had committed, out of some 61 figures from the country's chemical, electronics, and solar energy sectors, only six expressed their support for the move.

10 of 39 comments (clear)

  1. The con artist should know by quonset · · Score: 3, Insightful

    low-price Chinese imports are needed to "make ends meet" for cash-strapped Americans.

    It's why he has his name brand clothes made in China rather than U.S. and until recently, so did his daughter.

    Funny how the con artist touts made in America yet refuses to have his stuff made here.

  2. Re:China stopped and American company buying dutch by Mousit · · Score: 2

    Both Qualcomm and NXP do business in China. What they need approval from China for is to continue doing business in China, as a merged company. China couldn't directly stop the merger itself, no, but they could stop the newly combined company from operating within their borders.

    As TFS summary itself mentions, China represents 30% of Qualcomm's revenue. NXP similarly does significant business in China. Losing that market would be a massive loss, so they chose not to merge rather than lose access to the Chinese market.

    This is not at all unique to China. The EU and the US also do this sort of merger review of foreign companies that do business within their respective markets.

  3. Logical by johanw · · Score: 2

    The Chinese learnt from the ZTE case that yu should do as little as possible buisiness with American companies. NXP is now a Dutch company, but it would become a US company subject to their idiot sanctions. Trump tried to prevert sanctions against ZTE but congress didn't let him. So now the US gets repaid for the congress decision.

    As a Dutch national I'm disappointed that it required action from the Chinese to block this merger. The Dutch government itself should have prevented that US companies would buy up our national treasures.

    1. Re:Logical by tlhIngan · · Score: 3, Insightful

      The Chinese learnt from the ZTE case that yu should do as little as possible buisiness with American companies. NXP is now a Dutch company, but it would become a US company subject to their idiot sanctions. Trump tried to prevert sanctions against ZTE but congress didn't let him. So now the US gets repaid for the congress decision.

      Good, because ZTE violated all sorts of regulations that were inposed on it.

      The only reason Trump supported ZTE was China invested $500M into Trump hotels and granted Ivanka Trump a rare Chinese trademark. That's it. A little backroom dealing and let's forget that we asked you nicely to not resell those parts to places we asked you not to. And it's not like it was the first time, either.

      If you ever wonder why Trump seems to care for Putin, again, remember Russia is one of the few places where Trump's business are actually succeeding, quite well in fact. Everywhere else they are doing terribly. All this from a President who has not divested himself of his businesses while in power.

      Congress simply grew a backbone and enforced the order. Or shall we say, China did not scratch their backs obviously.

  4. Two Beellion! dollars by godel_56 · · Score: 4, Interesting

    What gets me is the size of the 2 billion dollar termination fee for a deal only worth 44 billion dollars in total.

    A termination fee is only supposed to cover the cost of due diligence and legal preparations leading up to the takeover or merger.. In some cases the boards establish an excessive termination fee to ensure shareholders approve a deal, because they know the company will receive a crippling penalty if they don't give approval.

    I've read that a reasonable termination fee should not exceed 2 per cent of the total value or $880 million in this case (still way too high IMO).

    1. Re:Two Beellion! dollars by Snuggles · · Score: 4, Insightful

      It was not just a DD+legal, NXP divested their standard products and small signal stuff as Nexperia and imported some of the culture and practices of giving out technical information to SME customers.
      I know quite a few companies that dropped NXP out from their design-in process due to merger, which causes long term damage. They also EOLed number of special discretes, but that was unfortunately to be expected and many companies bought lifetime supplies when the deal was announced.

    2. Re:Two Beellion! dollars by thegarbz · · Score: 2

      Yes, from the very beginning in 2016 when Qualcomm and NXP announced their intention to merge they knew they would not get past any regulators. The actual investment plan involved the divestment of a chunk of NXP before the Qualcomm merger goes ahead, that was one of the reasons why there was such a high $2bn penalty as a result.

      It didn't cover the costs because NXP divested it's Standard Products division to MCHI for $2.8bn keeping only the parts of the company that Qualcomm was actually interested in. However that may not be the full story. NXP previous divested it's RF division (part of Standard Products) in 2015 as a condition of buying Freescale which had a competing division. This also has a competing division with Qualcomm, so one school of thought is they were trying to divest this anyway, and another was that they divested to smooth things with the regulator.

      Either way NXP lost a chunk of its business during all this merger and acquisition talks that it won't get back now that talks broke down.

  5. Re:Trump Knows Economy by CaffeinatedBacon · · Score: 2
    Stopped reading after 2 sentences.

    Those criticizing Trump's war are really saying "DON'T ROCK THE BOAT!". Those who negotiated US trade policies are making handsome profits and could care less about the effect

    I couldn't care less about the rest of your comment.

  6. Re:I thought the Chinese were smarter by another_twilight · · Score: 2

    Growing the economy so that the unemployment rate is at historical lows is caring about those struggling

    One of the justifications for the claim that the economy is growing is the number of people employed - but the unemployment rate isn't the best measure, especially on its own. The participation rate for the US has been pretty much flat at about 62-63% for the last four years, and shows a steady decline from 2008 where it was 66%. That's still only looking at people who are actively seeking work. Those who have given up aren't counted, just as those who haven't looked for work in the last 4 weeks are 'unemployed'.

    These are not the graphs of an economy in growth. That's mostly fallout from the GFC and finger pointing to either Republicans or Democrats misses the point. There's a problem. It needs work to fix it.

    https://www.lowyinstitute.org/...

    I'm not addressing your "liberal is this; liberal is that" - I'm not from the US and the identity politics that are dividing people who would otherwise have enough in common to reach a useful compromise is deeply distressing.

    That a large section of the population feels betrayed and disenfranchised is clear. That their elected representatives are not representing their interests is also clear (with a few, often independent, exceptions). Neither party has the interests of the majority of people - both court the wealthy. Trump's election is a clear indication of this, but neither party seems likely to do anything different. Why should they? They aren't being abandoned by their supporters. Instead, they point their people at the other and demonise them. Republicans blame Democrats; Democrats Republicans. Both parties have loony fringes that are easy to exaggerate and, it seems, easy to convince their supporters are the 'true' face of the 'opposition'.

    I've friends who are ex-pat US. They describe the US system of government as one of compromise, with moderates from either of the major parties finding ways to bridge the gap to get things done. The current 'spoiling' play that's started at the highest levels and is being picked up by followers and supporters highlights the weakness of the US 'first past the post' two party system.

    Trump isn't likely to be the answer. The 'answer' is going to be a moderate who can convince others to join them in working on a solution. Could be a republican or a democrat, or some third party. Things might need to get worse before they get better.

  7. Re: Trump Knows Economy by CaffeinatedBacon · · Score: 2

    I was wrong, I could care less. I care even less about your comment.