Qualcomm buys NXP in biggest-ever semiconductor deal

Smartphone chipmaker Qualcomm has agreed to buy NXP Semiconductors for around US$38 billion (A$50 billion) in the biggest-ever deal in the semiconductor industry, making it the leading supplier to the fast-growing automotive chips market. 

The acquisition will also help Qualcomm, which provides chips to Android smartphone makers and Apple, reduce its dependence on a cooling smartphone market. 

With the deal, Qualcomm is taking a big bet on the internet of things (IoT).

"The pace of innovation in automobile and IoT will increase dramatically and I think we look at it as a tremendous opportunity," Qualcomm chief executive Steven Mollenkopf saidl. 

By 2020, some 21 billion IoT devices will be in use worldwide, up from fewer than 5 billion last year, research firm Gartner has estimated. 

The deal tops Avago's US$37 billion acquisition of Broadcom last year. 

The equity value of Qualcomm's offer is US$37.88 billion, according to Reuters calculations based on the company's fully diluted shares as of October 2. Including debt, the deal is worth roughly US$47 billion.  

Qualcomm's shares were up 4.9 percent at US$71.55 in afternoon trading. 

The US$110 per share cash offer represents a premium of 11.5 percent to NXP's Wednesday close. 

NXP's shares, which had risen 20 percent since reports of a potential deal emerged on Sept. 29, were marginally higher at US$99.24.  

Smooth sailing? 

Qualcomm said it expected the deal to clear regulatory scrutiny, given the complementary nature of the two businesses. 

Needham & Co analyst Rajvindra Gill said there was not much overlap in products or end-markets between the two companies. 

"There's been a lot of semiconductor M&A activity in the last two years and I haven't seen one deal that has been delayed because of regulatory hurdles at this point," Gill said.

The combined entity would have annual revenue of more than US$30 billion. 

NXP, based in the Netherlands, became the world's biggest maker of automotive electronics after it bought US-based Freescale Semiconductor for about US$12 billion last December. 

Goldman Sachs and JPMorgan have committed financing for the deal, which is expected to close by the end of 2017. 

Qualcomm said it expected the deal to generate US$500 million in cost savings annually within two years of closing.