It has been a year now since rumors first started circulating about QUALCOMM’s (QCOM) interest in NXP Semiconductors (NXPI), and more than eleven months since the $110 per share takeover was officially announced.  Since that time, we have published a number of notes for clients (two examples are here and here) discussing how through a combination of the performance of the semiconductor stocks and the breakup fee agreed upon in the original merger agreement, that NXPI shareholders would likely be better off if the deal didn’t go through.  For starters, if for some reason QCOM can’t close the deal because of regulatory or financial issues, the company would be required to pay NXPI a breakup fee of $2 billion.  With 330 million shares outstanding, that breakup fee works out to about $6 per share or 5% of NXPI’s current market cap.

The second and bigger reason NXPI shareholders may be happy to see the deal fall apart is due to the performance of semiconductor stocks themselves since the deal was announced.  The first chart below compares NXPI to the Philadelphia Semiconductor Index (SOX) since the start of July 2016.  Leading up to the merger announcement, NXPI generally tracked the SOX index pretty closely.  While the stock initially spiked and was outperforming its peer group immediately after the deal was announced, it started underperforming shortly thereafter and has continued to do so ever since.  As of today, NXPI is up 45% since the start of July 2016, but the SOX index has gained 73%!

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So how does that translate into stock prices?  In the chart below we have plotted the price of NXPI along with where it would be trading had it simply matched the performance of the SOX index from 8/1/16 on.  While NXPI has rallied 34.7% to $113.3 if it had performed inline with the SOX index, it would be trading at $134.6 today.  Now obviously, that’s a counterfactual, but even before taking the potential $2 billion breakup fee into account, one could easily make the argument that with the original takeover price of $110 per share still in place and NXPI trading above $113, the biggest risk for NXPI shareholders now is that the previously agreed upon deal with QCOM actually does go through!

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