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