Qualcomm’s offer is $110 per share, an 11.5 percent premium over NXP’s closing price of $98.66 yesterday. If you include NXP’s cash and debt, the price of the deal becomes $47 billion.
Qualcomm, which plans to finance the deal with a combination of its own cash and new debt, was probably expecting to pay less. NXP was trading at $82.24 on Sept. 28, the day before The Wall Street Journal reported that the companies were in talks.
The deal, which the companies expect to close by the end of 2017, continues the recent trend of consolidation among semiconductor giants.
Avago acquired Broadcom last year in a deal initially valued at $37 billion (the combined company kept the Broadcom name). And in July, SoftBank agreed to acquire ARM Holdings for roughly $32 billion.
Even NXP was in on the action. Last year, in what seemed like a large deal at the time, NXP acquired Freescale for $11.8 billion.
Qualcomm shares were up 3 percent at $70.19 this morning. NXP shares, which shot into the $100 range after Sept. 28, were trading up 1.3 percent at $99.97.
Auto & IoT
NXP sells mixed-signal semiconductors — chips that include analog and digital functions — to a wide swath of markets, but it’s arguably best known for the automotive market. NXP’s chips are used in safety systems, entertainment systems, and the variety of networks that are now built into cars.
Qualcomm, of course, is a giant in wireless networking, both the cellular and WiFi kind, and a rival to the original Broadcom. Combining with NXP would seem to open vast possibilities for 5G and the Internet of Things (IoT); it would also help Qualcomm diversify so that it’s less dependent on the cellphone market.
Qualcomm expects an immediate and “significantly accretive” effect on earnings once the deal closes — meaning NXP is going to add to earnings right away.
As The Wall Street Journal explained earlier this month, the quest for growth is one motivation for these huge semiconductor mergers. Chip development is becoming prohibitively expensive, a side effect of Moore’s Law and the number of transistors that now make up high-end devices.
That means the easiest way for a chip company to grow is through acquisitions. Startups are scarce, though, because of the cost of producing chips. The result, arguably, has been this small cascade of massive acquisitions.