Qualcomm Gets New Deadline for NXP as China Seeks Remedies

(Bloomberg) -- Qualcomm Inc. reapplied for approval from China’s Ministry of Commerce for its acquisition of NXP Semiconductors NV, which demanded a July deadline for closing the deal as regulators required additional concessions to give it approval.

The two companies have extended their agreement until July 25 at 11:59 p.m. New York time, Qualcomm said in a statement early Thursday. If they haven’t obtained Chinese sign-off by then, Qualcomm will pay NXP the previously agreed termination fee of $2 billion, scrapping the more than $40 billion deal, which has been pending for almost 18 months.

China’s Mofcom said Thursday the proposed acquisition would have substantial impact on the technology industry and may have negative effects on the market. Bloomberg News reported in March that Mofcom wanted more protection for local companies, which are concerned the combined entity would extend Qualcomm’s patent-licensing business into areas like mobile payments and autonomous driving.

“The authority has talked with Qualcomm about how to reduce the negative impact on the market and has conducted market tests using the remedy plan from Qualcomm,” said Gao Geng, a Mofcom spokesman. “An initial investigation shows Qualcomm’s plan can hardly solve relevant problems.”

Qualcomm shares fell 4.4 percent to $52.82 at 12:23 p.m. in New York. NXP dropped 3.8 percent to $108.66, more than $18 below what Qualcomm is offering on a per-share basis for its stock.

The U.S. chipmaker, which needs to complete its largest-ever deal to deliver on promises made to shareholders during its fight to fend off a hostile takeover by Broadcom Inc., didn’t explain why it was forced to withdraw and reapply for approval. The company has said it may use cash reserves set aside for the acquisition for a share repurchase if the transaction founders.

The deal could turn into a bargaining chip in the increasingly tense trade negotiations between the world’s two largest economies. U.S. President Donald Trump has threatened tariffs on $150 billion in Chinese imports for alleged violations of intellectual property rights, while Beijing vowed to retaliate on everything from American soybeans to planes.

This week, the U.S. imposed a seven-year ban on ZTE Corp. that prevents the Chinese communications-equipment maker from buying American technology, a serious blow to its global aspirations. Among the products that ZTE buys from the U.S. are Qualcomm chips, which are critical in its ability to remain one of the world’s Top 10 smartphone makers. Mofcom responded by saying it’s “ready to take necessary steps” to protect domestic companies.

Netherlands-based NXP is key to Qualcomm’s attempt to parlay its dominance in mobile-phone technology to the growing market for chips used in cars. Chinese approval for the transaction is the final hurdle.

The NXP acquisition, which was announced in October 2016, was complicated by the interest of hedge funds who took positions in the stock, arguing the Dutch company was worth more than Qualcomm was offering. Qualcomm sweetened the offer to $127.50 a share -- 16 percent more than the previous price. The San Diego-based chipmaker had told investors it would be closed by the end of 2017.

Approval for Qualcomm in China will also be a test of its hard-won right to do business there. In 2015, after paying a fine and agreeing to charge lower rates to local customers on phones for that market, Qualcomm was allowed to extend its lucrative technology licensing program in the country. Still, China has made clear that it wants to develop its own semiconductor industry and domestic rivals are laboring to field competitive products.

©2018 Bloomberg L.P.

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