Beijing’s U-Turn on Qualcomm-NXP Isn’t All That Helpful
Xi Jinping’s concession suggests deal approvals are now just bargaining chips in its trade fight with the U.S.
DealmakingGlobal cross-border mergers and acquisitionsSource: Dealogic
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By Jacky Wong
Dec. 3, 2018 4:49 a.m. ET
China and the U.S. may have reached a truce in their trade fight. It doesn’t make the picture for global deal makers any clearer.
That might seem a churlish judgment. After all, Chinese leader Xi Jinping said he is now “open to approving” U.S. chip maker Qualcomm ’s QCOM 0.26% $44 billion acquisition of Dutch chip maker NXP Semiconductors , NXPI 0.55% according to the official White House statement. The deal had fallen apart in July only because Chinese regulators had sat on it for so long, seemingly ending a takeover saga that dragged on for almost two years.
There are two big problems with Mr. Xi’s apparent concession.
First, Qualcomm doesn’t seem all that interested in resurrecting the deal. A representative said the company considers “the matter closed and is fully focused on continuing to execute on its 5G road map.” It has already spent nearly $22 billion—half of the deal’s value—on share buybacks since the transaction’s collapse.
Second, the idea that cross-border deal approvals are now just a part of broader trade talks isn’t actually very encouraging.
Of course, deal approvals in sensitive sectors are always somewhat political. Usually, though, countries have legitimate reasons to block transactions, such as national security.
Beijing has twisted Qualcomm every which way.
Beijing has twisted Qualcomm every which way. Photo: aly song/Reuters
In the Qualcomm-NXP case, China does have legitimate concerns. Qualcomm’s vast portfolio of patents means every smartphone maker already has to pay it lucrative royalties—a problem for fast-growing Chinese brands like Huawei and Xiaomi . Chinese regulators fined Qualcomm nearly $1 billion for violating its antimonopoly law in 2015, after which it agreed to reduce its royalty fees. A Qualcomm-NXP tie-up could allow bundling of their products, potentially re-aggravating the situation.
Mr. Xi has now signaled he will brush aside such concerns if it helps him in the broader trade talks with the U.S.—tacitly admitting that Beijing is willing to let political convenience trump considerations of market impact or even national security.
The idea that China can and will hold cross-border deals hostage for issues unrelated to the transaction—even if no Chinese company is involved—has now been made explicit. That adds a whole new level of risk to global deal making.
Write to Jacky Wong at JACKY.WONG@wsj.com
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