Qualcomm And The NXP Semiconductor Acquisition – Qualcomm Inc. (NASDAQ:QCOM)

Qualcomm’s (QCOM) tender offer for NXP Semiconductors (NXPI) would have expired on Friday, but it has been extended through the end of October. This gives Qualcomm more time to get regulatory approval, but even if the deal falls through, Qualcomm would not be a bad investment at the current level, I believe.

Qualcomm announced on Friday that its tender offer for NXP Semiconductor’s shares has been extended until October 20, 2017 — a necessary move since the company is still waiting for approval in Europe.

The European Commission has put the ongoing investigation regarding the acquisition on hold earlier this month, as it is taking a very close look, since Dutch NXP Semiconductors is one of the biggest semiconductor companies in all of the European Union. It is likely that Qualcomm’s tender offer will have to be extended further, as the decision by the European Union could be announced as late as December.

Non-approval would mean two things for Qualcomm:

First, the company would be liable to pay $2 billion to NXP Semiconductors if the deal does not happen due to Qualcomm’s faults (which includes the failure to obtain regulatory approval). This would be a one-time negative for Qualcomm, though, and due to the fact that Qualcomm’s cash reserves total a whopping $38 billion right now, the impact on the company’s cash holdings would be rather small.

Second, Qualcomm would not be able to acquire NXP Semiconductors, which means that the company’s growth outlook would dim, and the forecasted positive impact on Qualcomm’s earnings per share (on a non-GAAP basis) would not materialize. This would be more of a longer-term headwind for Qualcomm, but one that the company could easily recover from if it uses its cash reserves in the right way.

QCOM Cash and Short Term Investments (Quarterly) data by YCharts

Since Qualcomm’s cash holdings total $38 billion, which is almost exactly half as much as the company’s market capitalization, Qualcomm could easily make another move in order to acquire another company instead of NXP Semiconductors, as there are several other semiconductor companies trading in the $10 billion to $40 billion market capitalization range.

Another option would be for Qualcomm to repurchase its own shares instead of buying up the shares of another semiconductor company:

QCOM Average Diluted Shares Outstanding (Quarterly) data by YCharts

Qualcomm has lowered its share count considerably over the last couple of years, but recently the buyback pace…

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