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Qualcomm Rejects Renewed NXP Bid Offer on Trade War Truce

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As President Trump reached a 90-day trade war truce with his Chinese counterpart Xi Jinping, the latter offered an olive branch by indicating that QUALCOMM Incorporated’s (QCOM - Free Report) $44 billion deal to acquire NXP Semiconductors N.V. (NXPI - Free Report) could be considered for approval if it is resubmitted. A Reuters report, however, claimed that although Qualcomm appreciated the renewed offer as a positive development for U.S. firms, it would rather not contemplate rebidding and would prefer moving ahead than considering an already closed chapter.

Qualcomm aimed to acquire NXP to diversify its revenue stream and staked a claim in October 2016 with an initial offer price of $38 billion. While Qualcomm primarily relies on chip sales to mobile phone manufacturers that is fast becoming a saturated market, NXP has considerable presence in the budding market for automotive chips. Therefore, the acquisition of NXP would have enabled Qualcomm to diversify into highly lucrative end markets such as auto, secured devices, connectivity and secure payments, offering high-margin businesses with strong potential for growth.

However, NXP shareholders rejected the bid in favor of a better price, forcing Qualcomm to offer a higher bid of $44 billion in February 2018. Thereafter, the deal was stuck in red tape as the U.S. firm received approvals from eight of the nine global regulators, China being the only nation opposing the buyout on antitrust concerns.

The approval was put on hold by China’s Ministry of Commerce as a bargaining tool to seek more concessions from the United States after the two nations were engaged in a bitter trade war. Moreover, the regulators had to contend with domestic chip companies, which raised objections to the deal arguing that it was a potent threat to their survival.  

The issue further spiraled into a full-fledged conflict when the U.S. government banned sale of components by American firms to the China-based telecom equipment maker, ZTE Corp. Although, the Trump administration later eased some of the restrictions on ZTE, Qualcomm did not receive the go-ahead for the acquisition from China within July 2018. Consequently, Qualcomm was forced to abort the deal and paid a termination fee of $2 billion to NXP.

Since then, both the companies seem to have moved on, pursuing respective stock buyback programs to reward shareholders with risk-adjusted returns. While Qualcomm has embarked on a $30 billion stock repurchase plan, spending about $22.6 billion till September 2018 using cash reserves kept for the deal, NXP has announced its own $5 billion share buyback program.

The revamped dynamics perhaps leave no room for the companies to revert their course and fulfill the stalled deal. The reported comments from a Qualcomm executive further endorse this viewpoint and President Xi’s offer seems to have fallen flat.

Qualcomm currently sports a Zacks Rank #1 (Strong Buy). Other top-ranked stocks in the same space include Juniper Networks, Inc. (JNPR - Free Report) and Harris Corporation (HRS - Free Report) , both carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Juniper Networks surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 11%.

Harris outpaced estimates in each of the preceding four quarters, the average earnings surprise being 7.1%.

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