Qualcomm Inc said on Thursday it agreed to buy NXP Semiconductors NV for about $47 billion, including debt, as it seeks to expand the reach of its chips from phones to cars. The deal would make Qualcomm, which supplies chips to Android smartphone makers and Apple Inc, one of the biggest suppliers to the fast-growing market of chips used by the automotive industry.
Qualcomm said it would offer $110 per share in cash, a premium of 11.5 percent to NXP Semiconductor’s Wednesday’s close. The equity value of the deal is $37.88 billion, according to Reuters calculations based on the company’s 344.4 million diluted shares as of Oct. 2. Qualcomm intends to fund the transaction with cash on hand and new debt.
The company gets the bulk of its revenue from chip sales but most of its profit comes from wireless patents it licenses to the mobile industry. The transaction, which is expected to close by the end of 2017, is structured to use offshore cash flow in a tax-efficient manner to rapidly reduce leverage, Qualcomm said.
The company expects the deal to significantly add to adjusted earnings immediately upon its close and generate $500 million of cost savings annually within two years after the deal closes. Qualcomm had sat out the transformative consolidation sweeping the industry, which has seen mega-deals such as Avago buying Broadcom for $37 billion last year.
NXP closed a nearly $12 billion deal to buy US-based Freescale Semiconductor last December, creating the world’s top maker of automotive electronics and doubling the percentage of its auto-related revenue to 40 percent. The combined company is expected to have annual revenue of more than $30 billion, the companies said.
San Diego-based Qualcomm is facing slowing smartphone sales and stiff competition from Chinese and Taiwanese rivals. The company is currently ranked third in terms of revenue among global semiconductor companies in 2015, while Eindhoven-based NXP is ranked seventh, according to research firm IHS.
Goldman Sachs and Evercore were financial advisers to Qualcomm while Centerview Partners LLC advised its board. Qatalyst Partners, Barclays and Credit Suisse were financial advisers to NXP and Skadden, Arps, Slate, Meagher & Flom LLP and De Brauw Blackstone Westbroek were legal counsels.
NXP’s shares rose 2.4 percent to $101, while Qualcomm shares were up nearly 2 percent to $69.50 in premarket trading.