Qualcomm was forced to withdraw its application with China’s Ministry of Commerce and reapply for approval of its acquisition of NXP Semiconductors, one of world’s largest suppliers of chips for cars and embedded devices. The agency represents the final regulatory hurdle for the deal.
Qualcomm said in a statement that it extended deadline for the deal to 11:59 p.m. on July 25. If the acquisition has not been approved by the deadline, the company said on Thursday that it would pay the previously agreed upon termination fee of $2 billion to NXP Semiconductors. And that would be the end of the deal, valued at around $54.5 billion.
Qualcomm has been battered and bruised over the last year. The San Diego, California-based supplier has sustained regulatory fines, battled lawsuits and struggled to charm NXP shareholders, which largely refused to accept its original offer of $110 per share. In February, the company spiked the deal with another $17.50 per share to sway NXP’s institutional investors.
Qualcomm needs the Eindhoven, Netherlands-based company to follow through on promises to shareholders as it battled a hostile takeover bid by Broadcom. The firm forecast profits between $6.75 and $7.50 per share next year, and NXP accounts for around $1.50. Qualcomm said in January will lay off employees as part of a $1 billion cost-cutting plan to improve earnings.
On Thursday, the smartphone chip supplier disclosed in an employment filing that it would cut 1,500 California jobs starting in June. But the total number of impending layoffs at Qualcomm is unclear. The layoffs come shortly after the United States banned ZTE, one of Qualcomm’s largest customers, from purchasing American chips for seven years as a penalty for violating a sanctions settlement.
The prohibition could severely hinder the global ambitions of the Chinese smartphone and telecommunications giant. The blowback could also hurt Qualcomm, which has been pulled into the center of a brewing trade war between the U.S. and China. Many analysts say China could hold the deal hostage as retaliation for the ZTE ban and $150 billion in proposed U.S. tariffs on Chinese products.
The acquisition has not been sailing smoothly over the last 18 months. Qualcomm recently lengthened the tender offer period for NXP shareholders for the twenty-third time, and still only 16.2 percent of outstanding shares have been tendered. The company needs another 53.8 percent of all outstanding shares as well as approval from China's competition cop, MOFCOM, to seal the deal.
This is not the company’s first hiccup with Chinese regulators. Three years ago, the company was forced to pay $975 million in fines and agreed to take a smaller cut of smartphones sold by Chinese companies licensing its standard patents. The fine was significant but helped stabilize Qualcomm’s business in China, where around a third of its revenue comes from.
To placate regulators in China, which has poured tens of billions of dollars into bulking up its domestic semiconductor industry, Qualcomm may have to divest certain business units. China has remained several generations behind the U.S. in chip manufacturing technology, and Chinese companies have struggled to field competitive chips.