Lost my wife and lost
Due to the inability to pass the anti-monopoly approval of the Ministry of Commerce of China, Qualcomm had to give up the $44 billion acquisition of NXP Semiconductors last month. Qualcomm not only missed the opportunity to expand its business, reshape the industry, but also suffer Heavy economic losses, paying NXP up to $2 billion in liquidated damages.
NXP Semiconductors is a semiconductor business that was split in 2006 by Philips, the Dutch electronics giant. In 2015, it spent $11.8 billion to acquire Freescale Semiconductor (formerly Motorola's semiconductor business), which has advantages in automotive chips and NFC chips. It is also currently the top ten semiconductor manufacturers in the world.
Why does a US company acquire a European company, and does it have to be approved by the Chinese Ministry of Commerce? Like many multinational companies, Qualcomm’s acquisition of NXP requires not only antitrust approvals from the US and the EU, but also regulatory authorities in many important markets. The consent, including China, Japan, South Korea, Russia and other countries. Among the nine major regulators, China is the only country that refused to approve the Qualcomm acquisition transaction.
However, China is Qualcomm's most important market. Last year, Qualcomm's two-thirds of its revenue came from China (about 15 billion US dollars). Therefore, Qualcomm would rather give up the acquisition and lose $2 billion in liquidated damages. On the other hand, in order to appease shareholders who are disappointed with the failure of the transaction, Qualcomm also launched a $30 billion stock repurchase program.
Popularity after the financial crisis
Having said that, why does the Chinese government not approve the transaction, Qualcomm will have to compensate NXP for $2 billion? Mobile communications and chip giant Qualcomm have gone quite badly in recent years, not only suffering from high-priced anti-monopoly penalties in multiple markets, but also falling into Apple’s The patent litigation quagmire suffers billions of dollars in revenue per year. The net profit for the fiscal year 2017 was only $2.5 billion.
Because this kind of reverse liquidated damages or 'Reverse Break-up Fee' is written in black and white in the acquisition agreement, the significance is to protect the interests of the seller, eliminate the uncertainty of the transaction process, and prompt the seller Accept the offer, if there is no such liquidated damages, NXP's board of directors and shareholders may not accept Qualcomm's takeover offer.
It is worth mentioning that the reverse liquidated damages system in this acquisition process has only gradually spread since the financial crisis in 2007. If the acquirer cannot complete the transaction due to various reasons such as financing failure or regulatory veto, then it needs to be sold to the seller. Pay a certain percentage of compensation. After all, the major acquisition transaction needs to last for half a year or even one year. The seller has spent time and energy on the transaction, affecting operations and business, disrupting the stock price and market, and revealing the company in due diligence. data.
Take Qualcomm's acquisition of NXP as an example. The deal was announced as early as October 2016. It was originally expected to be completed in a few months. However, the twists and turns, first NXP shareholders believe that Qualcomm's offer is too low, and raise the quotation by litigation requirements, Qualcomm I agreed to raise the offer by $6 billion and then reached an agreement again; then I was stuck in the approval of the Ministry of Commerce of China, and there was no delay, several delays in the transaction deadline, until July 25 this year, I finally decided to give up. The transaction from start to finish It lasted for 22 months. During this time, NXP's share price, operations and R&D plans were greatly affected.
Of course, there is a breach of contract to protect the seller, which is to protect the purchaser's liquidated damages. This is usually because the seller has received a higher offer, or the seller's shareholder has changed his mind and refused to sell the company. For example In 2016, Microsoft's $26.2 billion acquisition of Linkedin, if Linkedin shareholders change their mind, would need to pay Microsoft $725 million in liquidated damages. And AT&T spent $85.4 billion on Time Warner's deal, if Time Warner refused after the agreement was reached. For sale, you need to pay $1.7 billion in liquidated damages to AT&T.
AT&T survives Lei Feng
In general, reverse liquidated damages range from 1% to 3% of the transaction amount. For example, Ant Financial’s $1.2 billion acquisition of MoneyGram’s lost transaction is $30 million in damages. However, if those are trading prospects In the event of an acquisition of uncertainties, or the occurrence of multiple bids, in order to impress the seller, the liquidated damages may exceed the normal standard, and may even be accompanied by other compensation measures.
In March 2011, AT&T, the second largest mobile operator in the United States, announced the acquisition of T-Mobile, the fourth largest operator at that time, thus surpassing Verizon to become the largest operator in the United States. If AT&T and T-Mobile were successfully merged, the total number of users at that time would be It reached 130 million people, far exceeding Verizon's 94 million people. Due to frequent mergers and acquisitions in the US telecommunications industry, many industry insiders including AT&T expect that as long as AT&T promises to make concessions on the frequency band after the completion of the acquisition, the transaction It should be approved smoothly.
In order to impress T-Mobile's shareholders, AT&T set a $3 billion liquidated damages for the $39 billion deal, which is close to 8%. However, the deal was not only met by Verizon and the third largest operator at the time, Sprint. The fierce opposition has been met by the US Department of Justice and the Federal Communications Commission to resist or even antitrust lawsuits.
After a nine-month lobbying failure, AT&T reluctantly gave up the deal and compensated T-Mobile for money ($3 billion), assets ($1 billion to $300 million in wireless bands) and services (seven years) The roaming agreement). At that time, the financial situation was tense, and the user's declining T-Mobile was blessed in disguise. Therefore, it gained valuable funds for laying the 4G LTE network, which laid the foundation for the later price war and exceeded Spint. AT&T became冤大头和活雷锋. With this in mind, AT&T spent $85.4 billion on the acquisition of Time Warner in 2016, setting a break-up fee of only $500 million. The acquisition is facing regulatory obstacles and is still in the process of being difficult to advance. However, AT&T will not suffer as much as it did in 2011.
Halliburton
However, the cash-breaking damages, Qualcomm and AT&T losses are not as good as the US oilfield services giant Halliburton. In 2016, Halliburton spent $35 billion to acquire rival Baker Hughes. The regulator vetoed that Halliburton was forced to pay $3.5 billion in liquidated damages to his peers. Halliburton had a 10% liquidated damages because of a malicious acquisition of Baker Hughes in 2014. Failed, this time I was eager to raise the price to win this competitor, I did not expect to be cross-cut by the regulatory authorities.
The paper’s record of damages on paper was in September 2013 when Verizon spent $130 billion to acquire a 45% stake in the joint venture between the two companies held by Vodafone Group. Vodafone therefore withdrew from the North American market, focusing on European operations. The liquidated damages amounted to $10 billion, with a ratio of 7.7%. Fortunately, the deal was successfully completed, and Verizon did not set this negative record.
The proportionally calculated liquidated damages record belongs to Google’s $12.5 billion acquisition of Motorola Mobility in 2011. Google has issued a $2.5 billion liquidated damages clause, up to 25%. It seems that Google’s anti-monopoly approval for trading is well-informed. , full of confidence.
From this perspective, Chen Fuyang of Broadcom also wants to thank the Trump administration for giving a good time. In order to impress Qualcomm's shareholders, Chen Fuyang, who is eager to swallow Qualcomm, not only raised the offer price from $100 billion to $121 billion, but also opened Out of the $8 billion in liquidated damages. If the US Foreign Investment Commission and the Trump administration did not directly veto the deal, and the Qualcomm board accepted the offer under temptation, the deal was reversed by the US Department of Justice. If the monopoly veto (the merger of Shuangtong will create a top three semiconductor giants in the world, the possibility of being rejected is still quite large), then Chen Fuyang will have to lose $8 billion in vain, which is almost the net profit of Broadcom for the entire 2017 fiscal year ( 7.255 billion US dollars). So, Trump completely broke Chen Fuyang's thoughts, not a bad thing.
LeTV is also accused
Of course, there is no such thing as a refusal to pay liquidated damages. LeTV’s announcement in July 2016 that it acquired the US local TV manufacturer Vizio is a case. In 2015, Vizio was forced to shelve its listing plan because of its low valuation. The equity transfer at the beginning of 2016 valued Vizio at only $1.6 billion. In this case, LeTV received a $2 billion offer at the right time, allowing Wang Wei, the founder of Vizio's 54% stake, and the founding team to see it. The opportunity to retired.
However, in the next few months, when Vizio patiently waited for LeTV to smoothly advance the acquisition transaction, it was the negative news of the Lexus capital chain break, until the following year, LeTV officially announced the abandonment of the transaction. However, although the world knows that the LeEco capital chain is close to breaking, the reason for the abandonment of the transaction is the 'regulatory unfavorable factor'.
During the nine months, Vizio, whose prospects were full of uncertainty, not only experienced a large loss of employees, but also showed a significant decline in its sales network and performance. NPR data showed that Vizio sold in the US market in the first half of 2017. The share measured by the amount fell by nearly three percentage points from the first half of 2016, and the market share measured by sales fell by 0.7 percentage points.
After LeEco announced the abandonment of the acquisition, Vizio filed a $100 million liquidated damages with LeTV under the terms of the transaction. However, LeTV, which was extremely nervous, paid only US$40 million. LeTV proposed to form a joint venture with Vizio, with a remaining US$60 million. The compensation was offset by the joint venture. But Vizio has lost trust in LeTV and filed a fraud suit against LeTV USA (acquisition subject) in the California High Court last July.
Vizio accused LeTV of deliberately concealing his financial situation in the complaint, intending to use the acquisition transaction to show the impression of his financial health, and obtained and used Vizio's large corporate customer information through the due diligence of the transaction. At the end of last month, California The federal court dismissed LeTV's request for withdrawal. The lawsuit is still pending, and I wonder if Vizio will receive the $60 million in compensation.