July 26, 2018 / 12:51 PM / 4 months ago

NXP launches $5 bln buyback after Qualcomm deal fails

WASHINGTON/BENGALURU, July 26 (Reuters) - NXP Semiconductors followed Qualcomm Inc in announcing share buybacks worth billions of dollars on Thursday as the companies sought to compensate investors for the collapse of their $44 billon merger due to Chinese opposition.

U.S. Treasury Secretary Steven Mnuchin said it was unfortunate that China had not granted regulatory approval for the deal, seen by analysts as the quid pro quo for concessions made by Washington on Chinese phonemaker ZTE.

“I’m very disappointed that they didn’t get regulatory approval,” Mnuchin told CNBC in an interview.

“I think this is another example of where it was approved in every single other territory. We’re just looking for U.S. companies to be treated fairly.”

Qualcomm was due to pay NXP a long-agreed breakup fee of $2 billion by 9 a.m. eastern time and the Dutch chipmaker said it would buy back $5 billion worth of shares.

Qualcomm’s board on Wednesday raised its own repurchase authorization to $30 billion.

Qualcomm shares rose 5 percent in trading before the bell on Thursday while NXP shares sank 10 percent - a level the company has not seen since Qualcomm made a bid for the company in October 2016.

“The decline in share price today partly reflects the failed acquisition but also disappointing Q2 results today,” said CFRA analyst Angelo Zino.

“We see resuming buybacks as a positive but the company is unlikely to find another suitor giving the current landscape for M&A in the semiconductor industry.”

A deal would have helped Qualcomm to lower its dependency on mobile chips by expanding NXP’s position as the world’s biggest maker of automotive electronics.

But the collapse of what would have been the biggest chip industry merger ever also leaves it free to concentrate on other problem areas of its business which promise more growth as well as resolving a series of legal conflicts over chip patents.

“While we are disappointed the NXP merger was abandoned for the long-term operating business, at least now there is some strategic clarity,” Cowen analysts wrote in a client note.

Growing resistance from customers to Qualcomm’s licensing practices has resulted in billions of dollars in regulatory fines, leaving the chipmaker searching for new ways to expand beyond its decade long dominance in chips for the mobile phone market, where growth has slowed.

With the NXP merger failing, Qualcomm now has to prove it can successfully diversify its business to move the overall financial needle, analysts said.

NXP, on the other hand, has to prove that the distraction caused by the deal did not hamper its growth prospects. The company will host its first earnings call in nearly two years on Thursday. (Writing by Supantha Mukherjee, editing by Patrick Graham)

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