Merger

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Rumor has it that NXP Semiconductors (NASDAQ:NXPI) is looking for a buyer. Leaning on nameless insider sources, Bloomberg said that QUALCOMM (NASDAQ:QCOM) is in "preliminary talks" with the company, and that NXP is shopping around for a better offer. NXP shares have soared more than 25% higher since the Bloomberg report was posted last Thursday.

It's a juicy rumor, but does it make any sense? Let's have a closer look.

By the numbers

First, here is a quick rundown of NXP and its supposed suitors:

Company

Enterprise Value

Net Debt

Trailing Revenue

Trailing Free Cash Flows

NXP

$33.4 billion

$7.6 billion

$7.7 billion

$0.5 billion

Qualcomm

$93.6 billion

($5.3 billion)

$22.8 billion

$6.5 billion

Broadcom (NASDAQ:AVGO)

$79.3 billion

$11.8 billion

$10.9 billion

$2.4 billion

Intel (NASDAQ:INTC)

$189.2 billion

$11.0 billion

$56.6 billion

$11.6 billion

Samsung Electronics (NYSEMKT: SSNLF)

$134.3 billion

$59.1 billion

$187.4 billion

$16.2 billion

Data source: Yahoo! Finance.

After combining with fellow embedded chip specialist Freescale Semiconductor, NXP now ranks among the 10 largest companies in the industry -- but still remains a relative minnow next to these even larger titans. This in-between market situation puts NXP in a tricky position. The company is large enough to move the needle significantly, even for Intel and Samsung, but too large to be an easy pickup for any of these peers.

It's true that most of these suitors have access to more capital than you see in the typical presentation of cash equivalents. For example, Intel and Qualcomm could liquidate nearly $14 billion of long-term investments in a pinch. But that's a last resort, and a very unlikely method of funding a major buyout.

As for Samsung, the semiconductor arm of this multi-industry colossus can't lay claim to the entire cash hoard. The Korean company derives just 24% of its revenue and 32% of operating profits from its semiconductor division.

The only realistic way to structure NXP's combination with any of these rivals would include additional debt and a fair amount of stock-swapping. The company is simply too large for a purely cash-based deal, and none of the suggested partners would make this move on a whim.

So, which company is most likely the winner?

Reading the tea leaves, Qualcomm certainly looks like the most deeply interested partner here. The company is looking to diversify beyond the mobile communications sector that has treated it so well over the last decade but is now running out of steam. NXP offers a brand new slate of target markets that includes automotive computing and digital security tools. Both of these would fit like a hand in Qualcomm's glove, without stepping on any of the buyer's toes in overlapping markets.

Furthermore, Qualcomm feels the itch from a large and inactive cash pile, and could put it to good use here. The pristine balance sheet would instantly turn toxic, but current and future cash flows should straighten out that problem in a couple of years. And don't forget that Qualcomm's shares are trading near their 52-week highs, making the stock an effective tool for cash-plus-shares takeover deals.

And there's even more evidence of a pending Qualcomm bid. According to Bloomberg, NXP hired Frank Quattrone's Qatalyst Partners to look around for serious bidders. As it happens, Qatalyst has a history of making big sales to Qualcomm. This was the firm that turned Wi-Fi chip specialist Atheros Communications into a Qualcomm division, with a generous $3.5 billion price tag.

Now, I'm not saying that Qualcomm absolutely must, will, or even should buy NXP. Fellow Fool Leo Sun already explored that question. But if there's an acquisition on the horizon, Qualcomm looks to be the most likely buyer.

Anders Bylund owns shares of Intel. The Motley Fool owns shares of and recommends both NXP Semiconductors and Qualcomm. The Motley Fool also recommends Broadcom and Intel. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.