The $38 billion merger between Qualcomm (QCOM 2.63%) and NXP Semiconductors (NXPI 2.65%) just hit a speed bump.
The European Commission decided to pause its antitrust review of the merger on June 28, because the regulators need more information from NXP and Qualcomm. The review started on June 9 with an original deadline marked for Oct. 17, but that deadline is now postponed until the companies have supplied the requested information.
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Playing by the book
In an emailed statement, European Commission spokesman Ricardo Cardoso clarified that this is standard operating procedure for merger reviews.
"This procedure in merger investigations is activated if the parties fail to provide, in a timely fashion, an important piece of information that the Commission has requested from them," Cardoso said. "To comply with merger deadlines, parties must supply the necessary information for the investigation in a timely fashion. Failure to do so will lead the Commission to stop the clock. Once the missing information is supplied by the parties, the clock is restarted and the deadline for the Commission's decision is then adjusted accordingly."
The first such deadline falls 15 days after the announcement of a merger review, or June 26 for this particular review. Two days later, the review deadline was officially suspended until further notice.
This is not the commission's first rodeo, of course. European regulators have "stopped the clock" on many big-ticket merger reviews before, and many of the paused deals ended up closing anyhow:
|
Deal |
Date of Halted EC Review |
Final Outcome |
|---|---|---|
|
Dow Chemical and DuPont |
Sept. 9, 2016 |
Still pending, but given conditional approval by European regulators in March 2017 |
|
Wabtec and Faiveley Transport |
July 13, 2016 |
Completed on Dec. 1, 2016, after conditional EC approval in October |
|
Zimmer Holdings and Biomet |
Deadline extended or suspended three times in 2014 |
Conditional approval on March 30, 2015; The company is now known as Zimmer Biomet Holdings |
The list goes on, and a few proposed mergers were indeed tripped up by the European Commission, with halted review periods along the way. For example, United Parcel Service (UPS 2.81%) ran into four deadline extensions or suspensions on EC reviews of its TNT Express bid in 2012. That merger was deep-sixed, and now TNT Express is a subsidiary of UPS archrival FedEx (FDX 1.60%) instead. The FedEx-TNT merger was approved unconditionally, and after just one EC deadline suspension.
What's missing? What's next?
We don't know exactly what information the European Commission is waiting for, but we do know the regulatory body's preliminary concerns:
- Combining Qualcomm with NXP would create a single company with dominant market shares in several closely related markets, such as wireless baseband chips and NFC controllers. The company could then muscle out competitors by offering big discounts on component bundles across these markets.
- In particular, the EC worries about undue influence over the automotive-computing sector and vehicle-to-everything networking products. Qualcomm plus NXP equals a massive market presence in this exploding industry.
- Finally, Qualcomm has a history of charging large royalty fees for its industry-standard technology patents, and the commission wants to make sure that NXP's intellectual property portfolio won't follow suit after the merger.
The companies need to convince European regulators that none of these fears will be realized, or propose steps they could take to resolve the alleged issues. If I had to guess, I'd wager that Qualcomm might be dragging its feet on the third bullet point here.
Why? Because the European Commission is actively investigating the company for exactly this kind of intellectual property strong-arming right now. I'm not a lawyer, but it seems smart to give Qualcomm's legal team all the time they need to prepare a response. Rushing a response might incriminate the company in the separate predatory-pricing investigation, after all.
I would also guess that Qualcomm and NXP will get over this hurdle, though they may be forced to spin off some operations in order to appease the European Commission. There's certainly life in this merger deal yet.
