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There may have been no greater casualty of the trade war between the US and China than NXP Semiconductors NV (NXPI). The stock was to be acquired by Qualcomm Inc. (QCOM)  for $44 billion, but the Chinese regulators would not approve the deal. Finally, after two years of trying to get approval, Qualcomm pulled the offer to buy NXP at the end of July.

With the deal completion in doubt for most of the second quarter, shares of NXP traded at a steep discount to Qualcomm’s offer price of $127.50.  It gave Daniel Loeb’s Third Point, LLC a chance to add nearly 11 million shares of stock to its portfolio, making it the funds second largest holding, accounting for roughly 8 percent of the total portfolio.

Big Buyback

Because of the failed takeover, NXP received a $2 billion break-up fee from Qualcomm. The company immediately put that money to work, announcing a $5 billion share repurchase agreement. It amounts to nearly 15 percent of the companies total $32.6 billion market capitalization.


Significant Opportunities

NXP is a powerhouse when it comes to automotive chips and near field communication. Additionally, the company is a growing player in artificial intelligence and the industrial internet of things. NXP’s dominant position in automotive chips is a huge positive for the company and could work in its favor as society moves closer to self-driving cars. Third Point is likely looking at the company’s positions within these different sectors and the enormous opportunities ahead.

Solid Growth

Analysts see revenue growth of roughly 5 percent in both 2019 and 2020. Meanwhile, earnings are forecast to accelerate, rising by 13 percent in 2019, and then by 24 percent in 2020. Although analysts don’t currently predict the stock to rebound to $127.50, they do see shares rising by about 14 percent to approximately $108, nearly 14 percent higher than the current price of $94.50.

Are Other Tiger Cubs Involved?

Lone Pine’s stake in NXP is significant,  valued at nearly $1.2 billion. What would be more interesting is to see if other Tiger cubs – a group of hedge funds that trace their origins back to Julian Robertson’s Tiger Management, LLC, took a stake in NXP. The rest of the second quarter 13F filings will be completed by August 15.

The big wager by Lone Pine to add NXP to its portfolio seems like a big vote of confidence. Lone Pine and all investors are hoping shares can not only climb back to $127.50, but even higher.

This entry was posted on Monday, August 13th, 2018 at 9:33 am and is filed under Hedge Fund News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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