MADISON, Wis. — Qualcomm’s $39 billion acquisition of NXP, expected to close at the end of this year, could hit a snag, according to a recent report by the Capitol Forum.
The report sees problems — potentially a double whammy — for the pending deal. First, China’s MOFCOM (Ministry of Commerce), increasingly driven by industrial policy, could target the Qualcomm-NXP deal by demanding material divestitures as a condition of clearance. Second, CFIUS (Committee on Foreign Investment in the United States) could object to concessions Qualcomm and/or NXP might offer to MOFCOM — on the grounds that they are selling sensitive technologies to China.
The Capitol Forum publishes subscription-only reports for audience ranging from policymakers and investors to law firms and industry stakeholders on such matters as M&A and anti-trust.
In an interview with EE Times, lawyer Ashley Chang, the author of the Capitol Forum’s report, said her report does not conclude that MOFCOM would kill the deal. But MOFCOM could “throw a wrench” by prolonging merger review, she cautioned.
Several semiconductor experts and China hands expressed concern that the increasing uncertainty of the deal isn’t driven just by China, but also the new U.S. administration, whose policy appears to be rapidly shifting to hardball trade diplomacy.
Dieter Ernst, East-West Center senior fellow, is worried about “economic nuance” getting lost in the Trump administration. He told EE Times, “We can predict and opine all we want about what can happen in this deal and that industry, but with this administration, it's seeming more and more like it's just going to be all about strong arming.”
So, let us break down the issues.
Our first question: Has MOFCOM in China ever killed an M&A deal?
MOFCOM’s record on anti-trust reviews does not show any deals (related to the electronics industry) outright rejected. “There is none,” Ernst said. “Among Chinese government agencies, MOFCOM, until recently was the most open to international integration.”
But as Chang noted, under China's Anti-Monopoly Law, MOFCOM answers to China’s State Council. Unlike the Department of Justice or the Fair Trade Commission in the United States, whose antitrust review “has been largely been free from political influence,” MOFCOM must tailor its decisions to China’s larger goals at any given time, Chang noted.
That larger goal today is China’s ambition to build an indigenous semiconductor industry. Given that mission, and given a number of big semiconductor M&A deals that have not gone China’s way in recent months, it would be no surprise if MOFCOM targets the Qualcomm/MXP deal in its efforts to get what China wants. Qualcomm’s merger with NXP presents “a golden opportunity” for the Chinese government to flex its muscles in hard-ball negotiations, aiming to pluck certain businesses or IPs from Qualcomm or NXP, they say.
Anything to divest?
Our second question: If so, which business or technology could NXP or Qualcomm divest and give to China in exchange of getting MOFCOM’s blessing?
Rob Lineback, senior market research analyst at IC Insights, told EE Times, “I'm scratching my head, trying to think of what NXP businesses could be divested to Chinese investors or chip companies but I can't come up with an obvious one that is 'expendable.’”
One candidate that initially came to mind was NXP's smartcard microcontroller business, he said.
But that’s not as easy as it sounds because “there would be a number of concerns regarding security applications — such as government IDs, e-passports, drivers’ licenses, etc,” Lineback said. He added that NXP's smartcard microcontroller business has about $1 billion in annual sales. NXP is the global leader in smartcard MCUs (more than 30 percent market share), followed by Infineon, Samsung and STMicroelectronics.
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