Reviews of Qualcomm, Bain transactions are stalled by Beijing
amid trade tensions
By Lingling Wei and Yoko Kubota in Beijing and Takashi Mochizuki in Tokyo
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 14, 2018).
BEIJING -- China is slowing reviews of multibillion-dollar
takeover deals being pursued by Qualcomm Inc. and Bain Capital,
people familiar with the matter say, as U.S.-China trade tensions
escalate.
The delay could end up quashing Qualcomm's planned $44 billion
purchase of Dutch semiconductor company NXP Semiconductors NV -- a
deal widely seen as critical to Qualcomm's future -- according to a
person familiar with the matter.
China is the only country that hasn't yet signed off on the
Qualcomm deal and on Toshiba Corp.'s planned $19 billion sale of
its chip unit to a consortium led by U.S. private-equity firm Bain
Capital.
Neither deal is likely to move forward amid the looming trade
war, the people said.
"The review process is basically on pause because of the trade
tension," a senior Toshiba official said. "We've been afraid of
that."
Stalling these deals is another possible leverage point for
China as it seeks to fend off the Trump administration's plans to
impose tariffs on up to $150 billion in Chinese goods in response
to what the administration says are unfair trade practices.
China has denied acting improperly and responded with threats of
what it calls "teeth-to-teeth" retaliatory measures, including
higher levies on $50 billion in U.S. imports.
China has a say on the Qualcomm-NXP deal as one of several
countries where the companies have substantial sales or assets. The
deal is considered critical for Qualcomm's competitiveness, by
broadening its reach beyond its stronghold in the handset business,
which has reached a plateau.
Qualcomm has said adding NXP would help it reach combined
markets, such as connected cars, that it expects to be worth $77
billion by 2020.
These are areas where Qualcomm believes its investments in
fifth-generation cellular technology, or 5G, are likely to yield a
big payoff. It also expects the merger to add immediately to its
adjusted per-share earnings. If the deal falls through, it has said
it will buy back shares to boost earnings by an equivalent
amount.
Worried that Beijing might scuttle the deal, Qualcomm Chief
Executive Steve Mollenkopf raised the issue with China's vice
president, Wang Qishan, in a March 27 meeting, people with
knowledge of the event said.
Mr. Wang sought to offer some assurances, the people said. He
told Mr. Mollenkopf regulators would review the deal through a
"science-based process" and that politics would have nothing to do
with it.
People familiar with the matter say the deal is still facing
resistance from China's commerce ministry, which has indicated it
is likely to seek more information from San Diego-based Qualcomm.
The ministry faces a deadline next week to make a decision,
according to one of the people. To keep the review alive, Qualcomm
and NXP could withdraw the current application and refile for an
extension.
Qualcomm faces its own deadline to complete the NXP deal. The
companies' merger agreement provides for two automatic extensions
of the deal's deadline, and the second was triggered in January,
extending it to April 25. The companies could still negotiate more
extensions, however.
Qualcomm declined to comment. NXP referred any questions to
Qualcomm, its acquirer. A Bain representative declined to comment
on the Toshiba deal. China's Commerce Ministry didn't respond to a
request for comment.
A Qualcomm deal is an important part of the company's plan for
revenue growth, after the Trump administration last month quashed a
$120 billion proposed acquisition of Qualcomm by Broadcom Ltd. --
an outcome Qualcomm wanted.
Qualcomm also faces a long-shot attempt by its former chairman
and CEO, Paul Jacobs, to marshal support to buy Qualcomm, which he
has said would be better off under private ownership.
As for Toshiba, the longer it holds onto its chip business, the
greater its risk of losing its technological edge: To remain
competitive in chips, it would have to make frequent
multibillion-dollar investments, which would be a challenge for
Toshiba with its unsteady finances.
As of April 1, Toshiba gained the right to cancel the deal with
the Bain-led consortium under the original sale contract. Toshiba
executives have said they want the deal to go through, but some
shareholders have said it should be scrapped. A lengthy delay in
China would increase that likelihood.
Toshiba's financial situation has improved since getting
hammered last year by the bankruptcy of U.S. subsidiary
Westinghouse Electric Co. A delay in the sale might even give
Toshiba a chance to negotiate a higher price reflecting the latest
market values. But further delay also means it will take longer for
Toshiba to again compete against other rivals, including Samsung
Electronics Co.
Washington and Beijing have been embroiled in a trade spat that
has become a source of financial-market turmoil in recent weeks and
raised concerns that a full-bore trade war could drag down the
global economy.
Having already tightened scrutiny of inbound deals from China,
U.S. officials are also crafting sharp prohibitions on Chinese
investment in advanced U.S. technology, taking aim at China's
practice of using state subsidies to foster Chinese dominance of
future frontiers of manufacturing.
Beijing, for its part, has blamed the U.S. for wrecking the
global trade order and is campaigning to line up support from other
countries, especially in Europe, whose companies could be given
better access to China's markets should China react to stepped-up
pressure from Washington by retaliating against the U.S.
So far, China has threatened to impose stiff levies on U.S.-made
soybeans, sorghum and other products, mainly from Farm Belt states
that helped Mr. Trump win the 2016 election. And it is looking for
retaliatory options beyond tariffs, government advisers and China
analysts say, such as stepped-up regulation of U.S. companies in
China.
Putting off approvals of cross-border deals that could benefit
U.S. firms is bound to further rattle policy makers in Washington
as the two sides enter the next phase of high-stakes dance.
"Merger reviews and decisions should be based on consistent,
scientific, market-based calculations and never the politics of
U.S.-China relations, " said Jacob Parker, vice president of China
operations at the U.S.-China Business Council.
Kosaku Narioka in Tokyo contributed to this article
Write to Lingling Wei at lingling.wei@wsj.com, Yoko Kubota at
yoko.kubota@wsj.com and Takashi Mochizuki at
takashi.mochizuki@wsj.com
(END) Dow Jones Newswires
April 14, 2018 02:47 ET (06:47 GMT)
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