We'll be exiting our position in NXP Semiconductors (NXPI) shortly after the opening bell Tuesday, selling 550 shares at a bid/ask of $125.85/$125.87. This day has finally arrived after many months of perseverance, patience and discipline.
We're selling because Qualcomm (QCOM) raised its bid Tuesday morning for NXPI to roughly $44 billion, or $127.50 per share. This is an increase from Qualcomm's initial $110 bid, which we long opined undervalued the company (and which explains why we refrained from tendering our shares).
In addition, Qualcomm lowered its minimum tender requirement to just 70% of NXPI's outstanding shares vs. an earlier 80% minimum. This further increases the likelihood that the deal will be completed once antitrust regulators in China approve it.
As you might recall, Qualcomm's original $110 offer had been met with heavy opposition. Large activist shareholder Elliot Management had been very vocal about how the offer significantly undervalued NXP. The firm even went as far as launching a campaign that featured a Web site with research arguing that NXPI was worth at least $135 based on peer comparisons.
Elliot's opinion was very well substantiated, and it apparently had a strong effect on shareholders, as the number of shares tendered never came close to the required 80% minimum threshold needed. In fact, Qualcomm reported that only some 1.5% of outstanding NXP common shares had been tendered as of Feb. 8.
This brings us to today, where Elliott Management announced that it's pleased with the revised bid and has agreed to tender its full position. In fact, Qualcomm announced that it's entered into a binding tender agreement with Elliot and eight other shareholders who collectively own more than 28% of NXP's outstanding shares.
Now, NXP is a name that we've held for a long time. When takeover speculation first began to swirl, we published an alert on Sept. 30, 2016 (since been republished as a white paper), where we said we'd be surprised to see management accept anything under $115 per share. Then in November 2016 when Qualcomm formally bid $110 per share, we wrote that not only did the offer undervalue NXPI, but shares were trading at a 10% discount to tender price that we expected would close.
As time progressed, our conviction that the stock was worth more than $110 increased due to the strength of NXPI's peers and the disconnect between Qualcomm's offer and what NXPI shareholders (including Elliott) wanted. But with the bid now raised to $127.50, we welcome this new price as fair and just given what NXPI would be worth on the open market. Altogether, we're pleased how this storyline played out and we'll gladly take this win and exit our position for about a 57% average gain.
Now, Qualcomm's revised bid is roughly $1.55 more than what the NXPI trades in the open market, so members who aren't in need of the capital today can simply tender their shares and get $127.50 once the deal closes. (That will occur if 70% of shares are tendered and Chinese regulators approve the deal.) But for us, we want to lock in this gain and exit our position to free up space for a new initiation.
One final note -- we haven't heard from Broadcom (AVGO) on this revised bid. However, AVGO management has previously stated that it would prefer to see Qualcomm not acquire NXP Semiconductors. We'll continue to stay close to the story there as that develops.