Elliott's NXP Stake Pushes Qualcomm to Raise Bid -- Update

Elliott Management Corp. disclosed a 6% stake in NXP Semiconductors NV on Friday, a signal it plans to push Qualcomm Inc. to raise its $39 billion offer to acquire the world's largest developer of chips for automobiles.

The New York-based hedge fund, in a securities filing, said NXP's shares are "significantly undervalued." It added that it plans to continue talks with the chip maker's board, management and potential acquirers among others in connection with operations and strategic transactions including the pending Qualcomm deal to boost shareholder value. Elliott owns 4. 9% of NXP's common shares and has exposure to another 1.1% through derivative agreements, according to the securities filing.

Qualcomm signed its deal to acquire NXP for $110 a share in October. The tie-up represents in part a bet that the car industry will be a key source of demand for chips as more driver-assistance features are added to vehicles and they ultimately start to drive themselves. Chip makers are under pressure to diversify as their business supplying wireless chips for smartphones plateaus. In March, Intel Corp. agreed to acquire Mobileye NV for $15.3 billion, gaining access to the Israeli company's car-camera technology for autonomous vehicles and its roster of customers including General Motors Co., Volkswagen AG and Honda Motor Co.

But since signing the deal, NXP's earnings have exceeded or largely met expectations, prompting some analysts to predict that the company's stock would likely trade significantly above $110 if that offer price didn't exist. NXP is based in the Netherlands but listed on the Nasdaq Stock Market. The stock most recently traded at $112.40. In February when the stock was about $100, Morgan Stanley predicted it could reach $121 over the next 12 months in the absence of the Qualcomm bid.

Elliott has a proven record of using its holdings in target companies to try to generate profits by pushing for higher takeover offers. In July 2016, for example, beer giant Anheuser-Busch InBev raised its $100 billion-plus offer for rival SABMiller PLC amid pressure from a group of hedge funds including Elliott and TCI Fund Management Ltd.

Not all attempts have worked out, however. GE dropped its attempt to acquire 3-D printing company SLM Solutions Group AG rather than try to appease Elliott with a higher offer.

Elliott's 6% could put it in a strong position to try to block the deal with the support of other shareholders since Qualcomm's offer is conditional on winning support from NXP investors holding at least 80% of the shares outstanding.

A NXP spokesman declined comment. A Qualcomm representative couldn't immediately be reached for comment.

Qualcomm said last month that it expected to close the NXP deal without raising its bid. But slumping profits due to a legal dispute with Apple Inc. could pressure the San Diego company to consider the option by diversifying its operations. Qualcomm is the leading producer of smartphone chips.

For the quarter ended June 25, Qualcomm reported a 40% profit drop as the Apple legal dispute blocked it from receiving patent royalties on Apple iPad and iPhone sales.

NXP's technology is used in automotive infotainment systems and air bags as well for identification and transit cards. Qualcomm is betting that those types of chips and NXP's customer base will help it more quickly penetrate the car market by complementing its business of supplying chips that bring wireless connection to cars.

More broadly the deal better positions Qualcomm to take advantage of the so-called Internet of Things trend as sensors, computing and communications are used to connect everything from home appliances to farm tractors to the internet. NXP's chips called microcontrollers are widely used in many such applications.

Write to Ben Dummett at ben.dummett@wsj.com

Elliott Management Corp. disclosed a 6% stake in NXP Semiconductors NV on Friday, a signal it plans to push Qualcomm Inc. to raise its $39 billion offer to acquire the world's largest developer of chips for automobiles.

The New York-based hedge fund, in a securities filing, said NXP's shares are "significantly undervalued." It added that it plans to continue talks with the chip maker's board, management and potential acquirers among others in connection with operations and strategic transactions including the pending Qualcomm deal to boost shareholder value. Elliott owns 4. 9% of NXP's common shares and has exposure to another 1.1% through derivative agreements, according to the securities filing.

Qualcomm signed its deal to acquire NXP for $110 a share in October. The tie-up represents in part a bet that the car industry will be a key source of demand for chips as more driver-assistance features are added to vehicles and they ultimately start to drive themselves. Chip makers are under pressure to diversify as their business supplying wireless chips for smartphones plateaus. In March, Intel Corp. agreed to acquire Mobileye NV for $15.3 billion, gaining access to the Israeli company's car-camera technology for autonomous vehicles and its roster of customers including General Motors Co., Volkswagen AG and Honda Motor Co.

But since signing the deal, NXP's earnings have exceeded or largely met expectations, prompting some analysts to predict that the company's stock would likely trade significantly above $110 if that offer price didn't exist. NXP is based in the Netherlands but listed on the Nasdaq Stock Market. The stock most recently traded at $112.40. In February when the stock was about $100, Morgan Stanley predicted it could reach $121 over the next 12 months in the absence of the Qualcomm bid.

Elliott has a proven record of using its holdings in target companies to try to generate profits by pushing for higher takeover offers. In July 2016, for example, beer giant Anheuser-Busch InBev raised its $100 billion-plus offer for rival SABMiller PLC amid pressure from a group of hedge funds including Elliott and TCI Fund Management Ltd.

Not all attempts have worked out, however. General Electric Co. dropped its attempt to acquire 3-D printing company SLM Solutions Group AG rather than try to appease Elliott with a higher offer.

Elliott's 6% could put it in a strong position to try to block the deal with the support of other shareholders since Qualcomm's offer is conditional on winning support from NXP investors holding at least 80% of the shares outstanding.

A NXP spokesman declined comment. A Qualcomm representative couldn't immediately be reached for comment.

Qualcomm said last month that it expected to close the NXP deal without raising its bid. But slumping profits due to a legal dispute with Apple Inc. could pressure the San Diego company to consider the option by diversifying its operations. Qualcomm is the leading producer of smartphone chips.

For the quarter ended June 25, Qualcomm reported a 40% profit drop as the Apple legal dispute blocked it from receiving patent royalties on Apple iPad and iPhone sales.

NXP's technology is used in automotive infotainment systems and air bags as well for identification and transit cards. Qualcomm is betting that those types of chips and NXP's customer base will help it more quickly penetrate the car market by complementing its business of supplying chips that bring wireless connection to cars.

More broadly the deal better positions Qualcomm to take advantage of the so-called Internet of Things trend as sensors, computing and communications are used to connect everything from home appliances to farm tractors to the internet. NXP's chips called microcontrollers are widely used in many such applications.

Write to Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

August 04, 2017 12:20 ET (16:20 GMT)