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Elliot Management Steps Up Efforts to Raise NXP Bid Price By Michael J. Kramer | November 3, 2017 — 11:24 AM EDT
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(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NXP.)
Qualcomm Inc.'s (QCOM) plans to acquire NXP Semiconductor NV (NXPI) took another turn on November 2, when reports surfaced that activist investor Elliott Management had enlisted UBS to find another bidder or to figure out the proper valuation for NXP. The Qualcomm-NXP story has taken a lot of twists and turns over the past year – one that has led to NXP stock to trade nearly $8 above Qualcomm's bid price of $110 a share.
Elliot Management disclosed a 6 percent stake NXP on August 4, 2017. In its SEC filing, the hedge fund noted that NXP shares were significantly undervalued and represented an attractive investment opportunity. On August 3, NXPI traded at $110.66 a share, and has been trading above $109 since June 2017.
NXPI Chart
NXPI data by YCharts
Tender Not Going Well
To close the NXP deal, Qualcomm needs shareholders to tender 80 percent of their shares. As of the last tender offer which expired on October 20, that number stood at only 3.6 percent, when NXP was trading at around $115. The latest news reports suggest Elliot Management is aggressively stepping up its efforts to either force Qualcomm's hand, or for a new bidder to emerge.
Break-up Fees
There are a couple of expensive items that come into play, though, in the form of termination fees. Should NXP terminate the deal, it would need to pay Qualcomm $1.25 billion. But if Qualcomm ends the deal, it has to pay NXP $2 billion.
Any new buyer would have to offer enough in cash to make NXP canceling the agreement with Qualcomm worth more than $1.25 billion, while Qualcomm would likely want to raise its bid price by at least $2 billion before terminating the agreement.
Higher Price
At its current trading levels of $117.75, NXP has a market cap of $39.91 billion, which is nearly $1 billion more than Qualcomm's proposed deal price of roughly $39 billion. An additional $2 billion increase in its bid price for NXP would raise the price to $41 billion. That equates to a revised bid of roughly $121 per share based on the 339 million shares outstanding.
It would not make sense for Qualcomm just to walk away from the deal and throw away $2 billion at this point without trying to seal the deal, putting the onus on NXP to terminate the agreement.
At this point, the NXP acquisition seems to be slipping away from Qualcomm. Given Qualcomm's licensing issues with Apple Inc. (AAPL), this deal is something it can't afford to lose. (See more: Qualcomm's Apple Dispute Raises Stakes of NXP Deal.)
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.
Read more: Elliot Management Steps Up Efforts to Raise NXP Bid Price | Investopedia https://www.investopedia.com/news/elliot-management-steps-efforts-raise-nxp-bid-price/#ixzz5RqJGjavd
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