In a joint press release published just hours after NXP's third-quarter results were released, the two chip companies announced a firm merger agreement. The all-cash deal values NXP at $110 per share, which, including debt, works out to an enterprise value of $47 billion.
Qualcomm will fund this gigantic purchase from cash on hand and new debt. As of the end of June, Qualcomm had $5.9 billion of cash equivalents on its balance sheet, alongside $11.2 billion in short-term investments and $13.9 billion of long-term investments.
Qualcomm intends to pour offshore cash flows into tax-efficient repayment of the transaction's debt, which suggests bond sales or bank loans in overseas markets. In particular, both NXP and Qualcomm collected 53% of their 2015 revenue in China.
Scheduled to close before the end of calendar year 2017, the tender offer to buy all NXP shares does not depend on any financing conditions, giving Qualcomm some time to work out its debt strategy.
NXP shareholders will be called to a special meeting to vote on the Qualcomm transaction and some of the proposed details of the offer.
More detail on the deal will be known when Qualcomm and NXP get around to filing their initial SEC papers. Moreover, Qualcomm's fourth-quarter results are due next Wednesday. Analysts are likely to prod the management team for further detail on the NXP deal at that time.
Together, NXP and Qualcomm will be a leader in the mobile communications and automotive computing markets. The two product portfolios do not overlap much, which opens a path to cross-selling synergies.
NXP shares opened Thursday's trading 1.4% higher, about $10 below Qualcomm's acquisition price. That leaves room for time arbitrage, since the agreement is expected to close roughly a year from now and still must pass the usual regulatory hurdles and shareholder approvals. Qualcomm's shares rose nearly 4% on the news.