June 20, 2018 | Technology | North America | Ended

NXP Semiconductors / Qualcomm: Not Over Yet. Revisiting Break Prices and Trade Tariffs

This research report was sitting on ice recently in hopes that MOFCOM would suddenly approve the deal and that the NXP rollercoaster would finally grind to a halt. Alas, the deal is not over yet and the recent moves encouraged us to publish further analysis. NXP is clearly not a riskless trade and risk arbitrage funds remain tick- and headline-watching for clues on how MOFCOM may react to US-China trade tariff retaliations and ZTE treatment. In this research report, we revisit our break price work in the event the deal terminates, assessing where NXP may immediately trade due to technical hedge fund selling and where it should eventually settle as a standalone entity. We also evaluate NXP amid receiving the break fee and re-levering itself to a more efficient capital structure and consider trends of precedent crowded deals that lapsed. Finally, we look at where we are now in ZTE and US-China trade frictions and provide a look-through into how this may affect MOFCOM’s thinking on Qualcomm.

Contents 1. Peers: Who We Should Use, Appropriate Baskets 2. Operating Metrics: Growth Rates and Margin Performance Versus Comps 3. Valuation Multiple Methodology: Base Break Prices 4. Share Performance Methodology: Base Break Prices 5. Adding Break Fee and Re-leveraging Values 6. Risks: No Marginal Buyers and a Hedge Fund Hotel 7. US-China Trade, ZTE and MOFCOM: Update and Commentary Appendices A. US Auto Semiconductor Revenues by End-Market B. NXP Semiconductors: Snapshot of Business Divisions C. Timeline and Background to the Escalating US-China Trade Dispute (47 pages)

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