Qualcomm focuses on IoT as it agrees to buy chipset maker NXP Semiconductors for US$47bn

Steve Mollenkopf Steve Mollenkopf, Qualcomm CEO

Qualcomm Inc. (NASDAQ: QCOM) and NXP Semiconductors N.V. (NASDAQ: NXPI) have today announced a definitive agreement, unanimously approved by the boards of directors of both companies, under which Qualcomm will acquire NXP for a share price valuing NXP at US$47 billion.

Under the agreement, writes Jeremy Cowan, a subsidiary of Qualcomm will start a tender offer to acquire all of the issued and outstanding common shares of NXP for $110.00 per share in cash, representing a total enterprise value of approximately $47 billion.

NXP is an established manufacturer of high-performance, mixed-signal semiconductor electronics, in automotive, broad-based microcontrollers, secure identification, network processing and RF power.  NXP also claims leading positions in automotive infotainment, networking and safety systems, with solutions designed into 14 of the top 15 infotainment customers in 2016.  NXP has a broad customer base, serving more than 25,000 customers through its direct sales channel and

NXP has a broad customer base, serving more than 25,000 customers through its direct sales channel and global network of distribution channel partners.

“With innovation and invention at our core, Qualcomm has played a critical role in driving the evolution of the mobile industry.  The NXP acquisition accelerates our strategy to extend our leading mobile technology into robust new opportunities, where we will be well positioned to lead by delivering integrated semiconductor solutions at scale,” said Steve Mollenkopf, CEO of Qualcomm Incorporated.  “By joining Qualcomm’s leading SoC (System on Chip) capabilities and technology roadmap with NXP’s leading industry sales channels and positions in automotive, security and IoT, we will be even better positioned to empower customers and consumers to realise all the benefits of the intelligently connected world.”

The combined company is expected to have annual revenues of more than $30 billion, serviceable addressable markets of $138 billion in 2020 and leadership positions across mobile, automotive, IoT, security, RF and networking.  The transaction is reported by Qualcomm to have “substantial” strategic and financial benefits:

  • Complementary technology leadership in strategically important areas: The transaction combines leadership in general purpose and automotive grade processing, security, automotive safety sensors and RF; enabling more complete system solutions.
    Mobile: A leader in mobile SoCs, 3G/4G modems and security.
    Automotive: A leader in global automotive semiconductors, including ADAS, infotainment, safety systems, body, and networking, powertrain and chassis, secure access, telematics and connectivity.
    IoT and Security: A leader in broad-based microcontrollers, secure identification, mobile transactions, payment cards and transit; strength in application processors and connectivity systems.
    Networking: A leader in network processors for wired and wireless communications and RF sub-segments, Wave-2 11ac/11ad, RF power and BTS systems.
  • Enhanced go-to-market capabilities to serve our customers:  The combination of Qualcomm’s and NXP’s deep customer and ecosystem relationships and distribution channels enables the ability to deliver leading products and platforms at scale in mobile, automotive, IoT, industrial, security, and networking.
  • Shared track record of innovation and commitment to operational discipline: Both companies have demonstrated a strong commitment to technology leadership and best-in-class product portfolios with focused investments in R&D.  Qualcomm and NXP have both taken action to position themselves for profitable growth, while maintaining financial and operational discipline.
  • Substantial financial benefits: Qualcomm expects the transaction to be significantly accretive to non-GAAP EPS immediately upon close.  Qualcomm expects to generate $500 million of annualized run-rate cost synergies within two years after the transaction closes.  The transaction utilizes Qualcomm’s strong balance sheet and will be efficiently financed with offshore cash and new debt. The transaction structure allows tax efficient use of offshore cash flow and enables Qualcomm to reduce leverage rapidly.

Mollenkopf continued, “We have taken significant action to build a foundation for profitable growth and the acquisition of NXP is strongly aligned with our strategy.  Our companies both have substantial expertise in delivering industry-leading solutions to our global customers, built upon a shared commitment to technology innovation, focused R&D investments and strong financial and operational discipline.”

“The combination of Qualcomm and NXP will bring together all technologies required to realise our vision of secure connections for the smarter world, combining advanced computing and ubiquitous connectivity with security and high-performance, mixed-signal solutions including microcontrollers. Jointly we will be able to provide more complete solutions which will allow us to further enhance our leadership positions, and expand the already strong partnerships with our broad customer base, especially in automotive, consumer and industrial IoT and device level security,” said Rick Clemmer, NXP chief executive officer. “United in a common strategy, the complementary nature of our technologies and the scale of our portfolios will give us the ability to drive an accelerated level of innovation and value for the whole ecosystem. Such a strong fit will bring opportunities for our employees and customers, as well as provide immediate attractive value for our shareholders, in creating the semiconductor industry powerhouse.”

Sir Peter Bonfield, chairman of NXP’s Board of Directors, added, “This is a major step in my 10 years’ chairmanship of NXP, and I am very pleased to see that the board of NXP has unanimously approved the proposed transaction and fully supports and recommends the offer for acceptance to NXP shareholders.”

Transaction details

Under the terms of the definitive agreement, a subsidiary of Qualcomm will commence a tender offer to acquire all of the issued and outstanding shares of NXP for $110.00 per share in cash.

Qualcomm intends to fund the transaction with cash on hand and new debt.  The transaction is structured to enable tax efficient use of offshore cash flow to rapidly reduce leverage.  Qualcomm is reportedly committed to maintaining its strong investment-grade credit ratings.

The “solid combined cash flow profile” will, says Qualcomm, support its current dividend and dividend growth. Qualcomm is committed to anti-dilutive repurchases of its common stock as it de-levers its balance sheet to pre-transaction leverage levels. The pro forma cash flow profile provides a strong foundation for long-term capital returns to stockholders.

The tender offer is not subject to any financing condition.  The transaction is expected to close by the end of calendar 2017 and is subject to receipt of regulatory approvals in various jurisdictions and other closing conditions.  The tender offer is conditioned on the tender of at least 95% of the outstanding ordinary shares of NXP or, if NXP shareholders approve the asset sale contemplated in the purchase agreement, the tender of at least 80% of the outstanding ordinary shares of NXP.  An Extraordinary General Meeting of NXP’s shareholders will be convened in connection with the offer to adopt, among other things, certain resolutions relating to the transaction.

The author is Jeremy Cowan, editorial director and publisher of IoT Now, IoT Global Network & VanillaPlus.

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