Technology

Qualcomm acquires NXP Semiconductor in a cash deal worth $47 billion

Qualcomm to buy NXP Semiconductors for about $47bn

Qualcomm announced on Thursday (27 October) that it has reached a deal to acquire the Netherlands-based NXP Semiconductors.

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The deal sees Qualcomm paying an eye watering $47bn in cash (£38.5bn) or $110 per NXP share. The Hedge Fund company now holds 48,445 shares of NXPI which is valued at $4,912,323.

NXP Semiconductors N.V. (NASDAQ:NXPI) now has P/E (Price to Earnings) ratio of 25.52 while the company's industry has 16.78 P/E and the sector P/E is 17.74. The combined entity is likely to generate annual revenues of over $30 billion.

Banks underwriting the financing for the Qualcomm and NXP deal will earn about $65 million to $70 million in upfront arranging fees, he said. The company said it expected to clear regulatory hurdles because of the complementary nature of the two businesses. Flotation of foreign subsidiary is necessary to avoid paying tax on its offshore cash.

Growth rates are very important while analyzing the long term growth and valuation of a certain company.

"Qualcomm is predominantly exposed to the smartphone market", technology analyst Janardan Menon, from Liberum, told AFP. It also expands the market to other companies to develop new, secure digital payment services and ensures consistency envisioned in the EMVCo token standards. For example, Qualcomm plans to use NXP's sales teams to sell Qualcomm-branded devices for IoT because these people know the market and know how to address it.

As for Japan's Renesas Electronics and Toshiba, both are bracing for the ramifications of the Qualcomm-NXP deal. NXP had acquired Freescale Semiconductors in March 2015 and had become a one stop shop for automotive intelligence. At this price, it would be the biggest chip deal ever in the world.

The major positive of the deal is that it will enable Qualcomm to diversify its business model. The big bet is on the driverless technology where NXP has a wide range of products including advanced driver assistance systems (ADAS), access, infotainment, in-vehicle networking, body, chassis and safety applications. A total of 36.61M shares exchanged hands, whereas the company's average trading volume stands at 5.53M shares. We do note that the stock is trading below the short-term 10 day moving average. Furthermore, since the start of the year, shares of the company have surged 44.10%. The Short Ratio for the stock is 1.48. Last week several media outlets reported that the NXP management wanted to get $120 per share, but agreed to $110 proposed by Qualcomm. Our GAAP diluted income per share was $0.26 because of positive fall through on incrementally higher revenue, improved operational execution and strong operating expense control.

The acquisition, announced on Thursday, is the latest in a burst of merger activity this month that will help lift US investment banking fee income from four-year lows. Furthermore, since the start of the year, shares of the company have gained 17.60%.

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Qualcomm acquires NXP Semiconductor in a cash deal worth $47 billion