NXPI -NXP Semiconductors N.V.

[ValueMaven]

bumping this given how hot a topic it is...  1 week away before a 'break;, and there is a $25 spread currently.  Does QCOM have any outs of this $2bn payment to NXPI??  Doesnt seem like it to me.  NXPI hasnt even hosted an earnings call with the Street it over a year...this could get very interesting.

[Gregmal]

Have been following as well and have gotten no indication of a way out of the termination payment. My assumption is this will have to sit in purgatory for a little while as it probably has one of the oddest combination of investors currently in it. Shares will then change hands a couple more times before this finds it's footing but all in all I see nearly $10 of EPS 18 months out(ie 2020 numbers) and worst case $8.50 for 2019. So we could win short term in a big way, or wait out probably more upside with the option to add lower. Good situation to be in. Who cares if you take a temporary paper loss?

[peterHK]

https://www.nytimes.com/2018/07/19/technology/qualcomm-nxp-trade-war.html

 

My bet is the deal doesn't get done.

 

As I've been saying for a while, it doesn't matter if the deal gets done or not, there's lots of ways to create value.

 

The $2bn break fee, plus $2bn in FCF this year, plus an extra 1x of leverage would allow NXPI to buy back 20% of shares outstanding. On old analyst estimates of $7.30/share in EPS would be taken to close to $9. At the current 14.5x earnings, that gets you to $128-130/share.

 

Beyond that, sales grow 1.5-2x GDP, Analog is a high FCF yield business with operating leverage, so this can compound earnings at 10% plus for a long time. In 7 years this would be a $210+ stock, so a double from here.

[Spekulatius]

At $90-95, I will buy some too. I don‘t think that deal approval is likely - China might run out of tariffs to retaliate, which means they will do so in other ways. Doing nothing is either for them.

 

Not true.  They gain a lot from approving.

 

1) They get concessions from NewCo vs. nothing if they don't approve.

2) They get goodwill from EU and rest of world, not to mention U.S.

 

It made complete sense they would wait till the 11th hour to approve.  They want to hold as much leverage as possible with ZTE outstanding and the larger trade war.  But once it becomes clear this deal will DIE on July 25th, they hold no leverage anymore.  And there is no way to put it back together if they don't act.

 

They also approved the 20b Toshiba deal to a US PE firm just a few weeks ago.  It shows the are not holding up every deal, merely delaying them for leverage.

 

Final point:  QCOM and NXPI will be pissed if this dies and could move biz operations outside of China over the coming months/years to make sure they don't get screwed again.  Yet another reason to approve the deal.

 

I looked at NXPI‘s operation and they only do tech backend manufacturing in China. I don’t think that China is losing sleep to lose those jobs.

 

I see ~4B in cash and ~6.5B in debt. If they take Qualcomm $2B that will probably net $1.5B after taxes and leaving them with $1B in debt.

 

This is a nice business, but it doesn’t look very cheap to me. That said, if it drops to the mid nineties, I would buy a few shares.

[ValueMaven]

https://www.scmp.com/business/companies/article/2156529/deadline-looms-us-china-trade-war-leaves-fate-qualcomm-nxp-merger

 

"But recent activity indicates a positive turn for the deal, according to multiple people that are familiar with the matter"

 

Very interesting given the Chinese based source/newspaper

[Lakesider]

https://www.scmp.com/business/companies/article/2156529/deadline-looms-us-china-trade-war-leaves-fate-qualcomm-nxp-merger

 

"But recent activity indicates a positive turn for the deal, according to multiple people that are familiar with the matter"

 

Very interesting given the Chinese based source/newspaper

 

Same paper that first reported that the deal was going through in early June, so I would take with a pinch of salt.

[Spekulatius]

https://www.scmp.com/business/companies/article/2156529/deadline-looms-us-china-trade-war-leaves-fate-qualcomm-nxp-merger

 

"But recent activity indicates a positive turn for the deal, according to multiple people that are familiar with the matter"

 

Very interesting given the Chinese based source/newspaper

 

Same paper that first reported that the deal was going through in early June, so I would take with a pinch of salt.

 

Well, we will know by Wednesday for sure. My guess would be that the deal is a no go.

[ValueMaven]

https://www.scmp.com/business/companies/article/2156885/qualcomm-prepares-drop-us44-billion-bid-nxp-semiconductors-china

[Lakesider]

Lets see how low it goes with the arbs getting out all at the same time.

[ValueMaven]

Who knows...I dont think you can say that at all...

 

The stock is very cheap and growing like a weed.  The company can now buyback stock and honest an analyst call etc with estimates etc, etc.  Not everything is rosy here, but at somepoint valuation becomes a floor...

[Gregmal]

I think the growth here is largely underestimated as I also think analysts are completely missing the demand that will be in place for what I consider to be "next gen" cars with all sorts of new technology; not just automated driving and AI but in car WIFI, improved navigation and even fully electric. This should transpire over the next 3-5 years and I think NXP will be a massive part of that.

[ValueMaven]

Agreed... the company hasnt hosted an analyst call or day in 18 months!

 

 

[Spekulatius]

I agree with above. This will be a good buy around $90.  Oth electrification and self driving cars are long term tailwinds.

[Foreign Tuffett]

I agree with above. This will be a good buy around $90.  Oth electrification and self driving cars are long term tailwinds.

 

It's at $91 now. Will probably be volatile over the next few days as the arbs rush for the exits and GARP investors start to come in.

[Gregmal]

I agree with above. This will be a good buy around $90.  Oth electrification and self driving cars are long term tailwinds.

 

It's at $91 now. Will probably be volatile over the next few days as the arbs rush for the exits and GARP investors start to come in.

 

Yea I'd wait a few days for the dust to settle. That's typically my rule of thumb in situations like this. Then again I dont always follow my rule of thumb but we'll see.

 

This whole situation reminded me of this

 

It was pretty much what we thought it was. 127.50 or around 90 short term. Wonder if Elliot still owns this. With their whole "worth $135 standalone" spiel. Always thought they were phonies.

[Lakesider]

https://www.reuters.com/article/us-nxp-semicondtrs-m-a-qualcomm/china-says-qualcomm-nxp-antitrust-proposals-insufficient-still-hopes-to-find-solution-idUSKBN1KH01E?il=0

 

Quite interesting that China seem to be interested in stringing this along...

 

Edit- On reading this it looks like they are just placing the blame.

 

https://www.bloomberg.com/news/articles/2018-07-27/china-says-it-regrets-qualcomm-decision-to-scrap-nxp-deal

[ValueMaven]

Add this to the host of drama...but I doubt it does much at this point. 

[Spekulatius]

I agree with above. This will be a good buy around $90.  Oth electrification and self driving cars are long term tailwinds.

 

It's at $91 now. Will probably be volatile over the next few days as the arbs rush for the exits and GARP investors start to come in.

 

Doesn’t matter. I still feel that China had no incentive to approve this, given the current climate. anyways, I bought a small position yesterday and would be willing to buy more. I hope NXPI’s management didn’t drop thr ball operating the company due to the merger. The company should be able to operate pretty well on their own, as they have done so far.

 

Yea I'd wait a few days for the dust to settle. That's typically my rule of thumb in situations like this. Then again I dont always follow my rule of thumb but we'll see.

 

This whole situation reminded me of this

 

It was pretty much what we thought it was. 127.50 or around 90 short term. Wonder if Elliot still owns this. With their whole "worth $135 standalone" spiel. Always thought they were phonies.

[ulysses02]

Still can't understand Mollenkopf's deal-making logic on setting the July 25th ultimatum, unless there are reasons other than trade that the deal was terminated.

 

So, in April 2018, the guy bets $2B of QCOM's bankroll on the conviction that trade-issues would either be resolved and/or MOFCOM will clear the deal by July 2018. But, MOFCOM itself had set October 15 as its end date and NXP was open to waiting until that end date. So, if the break-fee/option premium is fixed regardless of the duration of the option, why would you voluntarily select an expiry date 3 months earlier than the counterparty was willing to offer?

 

Assuming NXPI was that important to QCOM's future, Mollenkopf's actions are tantamount to "leaving time value on the table." There's no way you do that unless (a) choked or (b) the forfeited time value was less than the value of foregoing the deal.

 

Thoughts?

 

[Gregmal]

Still can't understand Mollenkopf's deal-making logic on setting the July 25th ultimatum, unless there are reasons other than trade that the deal was terminated.

 

So, in April 2018, the guy bets $2B of QCOM's bankroll on the conviction that trade-issues would either be resolved and/or MOFCOM will clear the deal by July 2018. But, MOFCOM itself had set October 15 as its end date and NXP was open to waiting until that end date. So, if the break-fee/option premium is fixed regardless of the duration of the option, why would you voluntarily select an expiry date 3 months earlier than the counterparty was willing to offer?

 

Assuming NXPI was that important to QCOM's future, Mollenkopf's actions are tantamount to "leaving time value on the table." There's no way you do that unless (a) choked or (b) the forfeited time value was less than the value of foregoing the deal.

 

Thoughts?

 

The only plausible explanation I can think of is that perhaps some shareholders weren't happy with the increased offer. Maybe this was the safest route. QCOM IMO is one of the worst run, poorly governed mega cap companies out there. They were going to be voted out by AVGO before they cried to the US government. I would expect self preservation at this point to be the primary motivating factor for any decisions being made. Having a 30B buyback at least allows them to "caress" their stock price. Which btw is still nowhere near the "insufficient" offer from Broadcom.

[Lakesider]

Looks like they are not sure what to do with cash.

 

https://www.nasdaq.com/press-release/nxp-semiconductors-announces-the-initiation-of-a-quarterly-dividend-program-20180910-01035

[peterHK]

Looks like they are not sure what to do with cash.

 

https://www.nasdaq.com/press-release/nxp-semiconductors-announces-the-initiation-of-a-quarterly-dividend-program-20180910-01035

 

That's barely a trickle and every peer pays one so they're succumbing to peer pressure a bit.

 

They've bought back almost $4bn of shares in 2 months.

 

Sounds to me like they have a pretty good idea of what to do with cash.

[Gregmal]

I think the big question is whether they re-up the buyback or not. If they felt 4B at 92 or whatever is worth taking down in 2 months, you figure they'd keep it up once they blow through the current program. If not, then it's likely this was just a move to save face. I agree the dividend is stupid.

[ValueMaven]

Still one of my top ideas...I like this name for the long-term.  I've been adding on weakness, and have been very impressed with the CEO's recent comments.  He has been buying stock in the open market as well

[Spekulatius]

Adding on weakness too here around $83. I think the dependency on China (~24% of revenues) and automobile is probably causing the weakness in the stock. I like the growth runway here.