CHIPS: China Kills Qualcomm Mega-Merger With Silent Treatment
Bottom line: China used its traditional silent treatment approach to kill Qualcomm’s bid to buy NXP, quite possibly to show its displeasure with recent US trade tensions, but resulting global pressure could forced it to be more transparent in the future.
We’ll close out the week with my own quick-and-dirty post mortem of the collapsed deal that would have seen telecoms chip maker Qualcomm (Nasdaq: QCOM) purchase Dutch rival NXP (Nasdaq: NXPI) for $44 billion. Put simply, this deal appears to have been killed by China’s classic approach of “kill them with silence.”
But there’s a bit of a postscript this time around, as China’s regulator took the unusual step of actually breaking its silence once the deal was dead. This appears to show that China has learned a lesson from this particular battle, namely that it needs to take a stance on things and explain its decisions, even if people might disagree. That would be quite a break from its old approach of just sticking its head in the sand and pretending like nothing is happening when it makes unpopular decisions.
This is actually quite an important step for China, which has been used to using the silent treatment to express its displeasure and often attempt to absolve itself from responsibility in many important matters. High officials here often resort to this particular tactic, and that’s partly what has gotten China into this mess with the US to begin with. “Make vague promises and follow up with nothing but silence” has been a sort of mantra for Beijing in the last four decades since the country began its official transformation to a market economy.
Of course I’m exaggerating a bit, but hopefully readers will get the gist of my message, namely that China is expert at a sort of passive-aggressive approach that it believes absolves it from blame when bad things happen that are the direct result of its actions, or inactions in this case. That’s certainly the case with Qualcomm’s planned purchase of NXP, which has been officially been scrapped after a deadline passed on Thursday without the requisite approval from Beijing. (English article)
To recap briefly, Qualcomm announced its blockbuster plan to buy NXP nearly two years ago, in what would have been the industry’s biggest-ever merger. It received all the necessary approvals in major markets where it does business, except for China. Beijing actually did speak out on the subject earlier this year, asking the two sides to resubmit their application to address its anti-competitive concerns. But it only made that request after a lengthy review, and appeared to be responding to public criticism that it was taking too long to respond to a deal that others had cleared months ago.
The cone of silence descended once again after that, leaving Qualcomm and NXP to guess what they could possibly do to satisfy the regulator’s anti-competitive concerns. Apparently the two companies got too tired of waiting, and finally decided not to extend their deadline anymore after already extending it numerous times without any result.
In true Chinese fashion, Beijing made no comment on the situation and probably wasn’t prepared to say anything and just let the deal fall apart due to its own inaction. It actually took similar action about a decade ago, when two of China’s own biggest private media companies, Sina (Nasdaq: SINA) and Focus Media (Shenzhen: 002027) , were set to merge. Rather than outright veto the deal, for whatever reason it deemed appropriate, it simply never gave its approval until the two sides finally called it quits.
Of course this latest deal was quite a bit different, since neither of the companies was Chinese and yet Beijing killed the merger. That’s not completely unheard of, though it is quite unusual for a country to kill a deal where neither side is based within its borders. Perhaps that’s why the State Administration for Market Regulation, which was reviewing the deal, has taken the unusual step of issuing comments after the deal’s collapse, saying it was still open to negotiations to resolve its concerns. (English article)
I’m sure Qualcomm and NXP have had just about enough, and they indicated they are convinced there’s no way the deal can close in the current climate that includes big economic tensions between Washington and Beijing. China has denied that bigger political tensions played any role in its failure to approve the deal, and that the decision was purely based on the its own antitrust concerns.
At the end of the day, I suppose it’s possible but highly unlikely that Qualcomm and NXP could reopen their merger plan despite Beijing’s belated invitation. Instead, perhaps the one positive thing to come out of this mess, which was widely watched all over the world, is that China’s opaque regulators are realizing that silence is no longer an acceptable approach. That means that like everyone else, they will be forced to justify their decisions and explain why, in a case like this, Qualcomm and NXP couldn’t address its concerns even when they could satisfy every other major regulator in the world.