Samsung second-guessing potential NXP acquisition

NXP headquarters in Eindhoven, the Netherlands / Courtesy of NXP Semiconductors

High costs, tough antitrust review cited as top challenging factors

By Kim Yoo-chul

Samsung leader Lee Jae-yong's release from prison is helping the company prepare for its next chapter. His release is putting pressure on corporate leadership to possibly use its huge cash reserves to make timely and splashy investments.

The justice ministry's approval of Lee's parole goes against President Moon Jae-in's commitment not to use his authority to pardon or parole top white-collar criminals "for the sake of the economy." Right after Lee's release from prison, President Moon said he understood the criticism regarding the release of the Samsung vice chairman, but at the decision was based partly on the country's expectations for Lee's increased contribution to tackling chip shortage and vaccine supply issues.

Because many governments view semiconductors and the current short supply as a matter of national security, they are committing to increasing their spending and actively pursuing policies to boost semiconductor production. Korea plans to invest up to $450 billion until 2030 in a bid to make national chipmakers more competitive.

Given Samsung's world-leading strength in memory chip-making, the company is being asked to clinch some creative and large-scale acquisitions, as its leadership is increasingly being challenged in segments it has edges in.

As CEOs of the country's family-run conglomerates function more in a chief operating officer (COO) role, no major investment or acquisition deals can proceed without a signoff from Lee, the scion of the owner family.

From that standpoint, investors continue to focus on Samsung over its intention to purchase Dutch chipmaker NXP Semiconductors. But Samsung is coming close to shifting its stance towards the "NXP scenario" as its secondary option rather than a primary one.

On Sunday, sources involved with the issue said the South Korean tech behemoth has started rethinking its possible acquisition of NXP.

"NXP Semiconductors was one company on Samsung's shopping, but the company is second-guessing its acquisition of NXP because NXP is too big," an industry executive said by telephone.

If Samsung acquires NXP, then it can sell vehicle components to its existing clients such as BMW and Ford, but a high price and expected tough antitrust review are cited as the two major points pushing Samsung to reconsider its assessment of taking over NXP, the executive added.

Because Samsung has lagged behind in areas such as foundry chip-making, driverless vehicles, 5G and biotech, its recent confirmation that it will try to close "sizable deals" in the next few years raised investors' expectations that Samsung may acquire NXP with JPMorgan recently justifying that scenario. Samsung Electronics' net-cash was some 125 trillion won as of last year, comparable to Apple and Google in terms of cash holdings.

The logo of Nvidia is seen in this file photo. Reuters-Yonhap

"NXP Semiconductors is becoming expensive. The automotive chip industry will further expand, and given NXP's market position, it will be viewed as appropriate for Samsung and actually it could be the right fit to help Samsung fill in its weakness in the contract-chip making and automotive solution businesses, but NXP is too pricey," another executive said.

The acquisition price of NXP is estimated at some 80 trillion won including an acquisition premium. Samsung considered acquiring NXP back in 2019.

"Samsung doesn't want to embrace the risk of possibly overpaying because multi-billion-dollar acquisition deals always carry huge risks."

Antitrust issues

Qualcomm had attempted to purchase NXP back in 2019, as it offered a massive $44 billion, but the deal fell through because of a veto by the Chinese government.

The acquisition of NXP, if it actually happens, is subject to approval from antitrust regulators of the EU, China and the United States, as NXP is one of the global top automotive chipmakers. That means any attempt to acquire it must pass tough antitrust reviews.

"In the case of the U.K.'s recent stance toward Nvidia's suggested $40 billion takeover of British designer Arm, getting approval from antitrust regulators around the world and appeasing governments will truly be time-consuming," said another source.

The British Competition and Markets Authority said it found significant competition concerns with Nvidia's proposed takeover of Arm, as it believed the takeover could lead to a potentially substantial lessening of competition in markets including the supply of vehicle software and gaming consoles. The U.K. authority also assessed the Nvidia-Arm deal as a point of national security.

In contrast to China's disapproval of the Qualcomm-NXP deal, the case would be slightly different for Samsung as the Korean company is one of the top foreign investors in the neighboring country, which has so far invested more than 100 trillion won into China since its entry there.

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