MADISON, Wis. — AT&T, eat your heart out.
Qualcomm Inc. announced Thursday a definitive agreement to acquire NXP, creating a combined company with annual revenues of more than $30 billion.
Qualcomm will offer $110 per share in all cash transaction — a premium of 11.5 percent to NXP Semiconductor's Wednesday's close — for a total enterprise value of approximately $47 billion.
Worth roughly $39 billion excluding debt, the agreement would represent the biggest chip deal ever, exceeding Avago’s $37 billion agreement to buy Broadcom Corp.
Qualcomm said the closing of the deal is expected at the end of 2017. Steve Mollenkopf, CEO of Qualcomm, Inc., explained that the timing — more than a year from now — is due to regulatory review and approvals that must come from nine jurisdictions around the world.
And AT&T thought it had troubles with Tom Wheeler.
Mollenkopf noted during the conference call that the deal will enable the combined companies to become “the semiconductor engine for the connected world.”
Qualcomm pegged the merger’s serviceable addressable markets at $138 billion in 2020, expecting it to hold leadership positions across mobile, automotive, IoT, security, RF and networking.
Qualcomm could have had a number of options to expand its business. They include doubling down on its supremacy in mobile technology, diversifying its product line, or doing a succession of smaller deals.
Qualcomm looked at what will be happening “over the next two decades in cars and IoT,” said Mollenkopf. “Technologies and the pace of innovations in those two areas are dramatically increasing.”
Mollenkopf sees it comparable to “where handsets were back in 2000.”
Considering that more advanced technology roadmaps will become necessary in both automotive and IoT, “Now is the right time” to buy NXP and “get a little bigger and get ready for the next decade,” Mollenkopf explained.
For NXP, the feeling is mutual. Despite a leadership position in automotive, Richard Clemmer, NXP’s CEO, acknowledged, “Especially in the ADAS area, we’ve needed to expand computing capability.”
Clemmer said, “Over the last few quarters, I’ve been talking to Kurt [Kurt Sievers, executive vice president and general manager Automotive at NXP].” They’ve identified their need for more computing power for the ADAS platform, but in particular, Clemmer noted, “machine learning, for which we have no internal development going on.”
[Read more: Qualcomm-NXP: Another Testosterone-Driven Deal?]
There’s no question that NXP leads globally in automotive semiconductors, especially in infotainment, safety systems, body and networking, powertrain and chassis, secure access.
Together with Qualcomm, NXP sees the opportunity to add telematics and connectivity. Their long game is to seize a clear lead in ADAS and ultimately dominate the autonomous driving platform.
Meanwhile, NXP holds the key for Qualcomm’s entry into cars. Considering the auto industry’s high barriers to entry and long product cycle, NXP’s relationships with many automotive OEMs and tier ones will be the most valuable complementary assets to Qualcomm.