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Investors 'Wait With Baited Breath' Following Conflicting Reports On Qualcomm-NXP Deal

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Investors 'Wait With Baited Breath' Following Conflicting Reports On Qualcomm-NXP Deal
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China OKs Qualcomm-NXP Merger, But Companies Have Moved On

Shares of NXP Semiconductors (NASDAQ: NXPI) and QUALCOMM, Inc. (NASDAQ: QCOM) were volatile Friday on conflicting reports about the companies’ proposed merger.

What Happened

The South China Morning Post reported late Thursday that Chinese regulators approved Qualcomm’s acquisition of NXP for $44 billion, attributing the information to two sources with knowledge of the matter.

Not long after, a conflicting Reuters report dismissed the news, citing three insiders who said regulators have yet to approve the deal.

Qualcomm stock bounced between being up 2.4 percent and down 0.1 percent in premarket trading Friday. NXP stock followed a similar pattern, spiking initially up 5.9 percent before quickly coming down to trade between 1.5 percent and 3.6 percent higher.

Why It Matters

Approval from China would clear the last major roadblock for the deal. The companies needed approval from antitrust regulators in nine countries. Eight of the nine have already signed off on the merger. 

There have been rumors that the deal was being held up these past few months by the U.S. government’s dealings with ZTE and the ongoing threat of a trade war between the U.S. and China. On Friday, the White House announced a 25-percent tariff would be placed on $50 billion in Chinese goods.

The South China Morning Post had speculated that the deal’s approval came in part due to the U.S. Commerce Department striking a deal to save ZTE.

Bernstein's Stacy Rasgon weighed in on what the deal’s approval could mean for the stocks. An official announcement of approval would likely provide support for Qualcomm, providing investors with at least a small degree of certainty moving forward, the analyst said. 

During Qualcomm’s first-quarter earnings call, Qualcomm’s management said it could take three weeks to close the deal after getting the OK from China.

Rasgon expressed concern over NXP’s near-term health, citing high integration risk and a number of other factors occupying management’s attention.

The analyst places a “fair value” of $110 to $125 on NXP shares assuming future buybacks, approximately $5 per share in break-up value and valuation in the upper half of the stock’s historical range. Rasgon’s floor valuation” would place the stock in the $80 to $95 range.

Bernstein has not yet seen official confirmation of the merger, Rasgon said — "but we wait with baited breath." 

What’s Next?

Before the Qualcomm-NXP deal, traders will be looking to see how China’s vow to respond proportionally to U.S. tariffs takes shape.

Should the deal go through though, the shareholder tender would be the final step to closing. Qualcomm has offered $127.50 per NXP share, a price that Rasgon said will get shareholders to tender “en masse.”

The analyst maintains Market-Perform ratings on both companies.

Related Links:

9 And Counting: Qualcomm's NXP Buyout Offer Deadline Extensions Could Continue

NXP Semiconductors' Standalone Value Is $119, SunTrust Says In Downgrade

Latest Ratings for QCOM

DateFirmActionFromTo
Nov 2018Morgan StanleyUpgradesUnderweightEqual-Weight
Nov 2018UBSMaintainsNeutralNeutral
Oct 2018Bank of AmericaDowngradesBuyNeutral

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