Image source:
What's going on?
A big American hedge fund is looking to disrupt the planned acquisition of European semiconductor firm NXP by its bigger rival Qualcomm.
What does this mean?
Elliott Management is a large hedge fund (often referred to as an activist investor) that frequently invests in companies that are about to be purchased and typically fights for a higher price. In October of last year, NXP agreed to sell itself to Qualcomm for about $38 billion. However, only NXPs management and board agreed to that deal it still needs to be approved by at least 80% of NXPs shareholders in order to go through. Elliotts involvement makes it more likely that NXPs shareholders will demand a higher price, forcing Qualcomm to either pay up or walk away.
Why should I care?
For the market: NXPs stock price could benefit even if the deal falls apart.
Usually when a deal falls apart, the stock price of the company that was going to be acquired falls significantly. However, since last October when the deal was agreed, the stock prices of semiconductor firms (such as NXP) have increased substantially. Many investors, including Elliott, argue that NXP is worth much more than Qualcomm has agreed to pay and hence Qualcomm should have to pay more.
The bigger picture: The deal is a big bet on autonomous driving and the Internet of Things.
NXPs chips are widely used in the burgeoning Internet of Things (for example, in Bluetooth-enabled mirrors). NXP also makes chips used in cars, and therefore its revenue should grow as driverless cars become more widely adopted. The idea is that Qualcomm will be able to use NXPs strength in new product areas to drive its growth once the deal is complete and that potential for growth may encourage Qualcomm to pay up.
Originally posted as part of the Finimize daily email.
The top 2 financial news stories in 3 minutes. Join over one million Finimizers
