By Lingling Wei and Yoko Kubota in Beijing and Takashi Mochizuki in Tokyo 

BEIJING -- Amid escalating trade tensions, China is holding up deal reviews that could clear the way for U.S. companies Qualcomm Inc. and Bain Capital to make multibillion-dollar acquisitions of semiconductor companies, people familiar with the matter say.

The delay could end up quash Qualcomm's planned $44 billion acquisition of Dutch semiconductor company NXP Semiconductors NV, a deal widely seen as critical to Qualcomm's future, according to one person familiar with the matter.

China is the only country that has not yet signed off on that deal, along with Toshiba Corp.'s planned $19 billion sale of its chip unit to a consortium led by U.S. private-equity firm Bain Capital. Neither deal is likely to move forward amid the looming trade war, the people said.

"The review process is basically on pause because of the trade tension," a senior Toshiba official said. "We've been afraid of that."

Stalling these deals is another possible leverage point for China as it seeks to fend off the Trump's administration's plans to impose tariffs on up to $150 billion in Chinese goods in response to what it says are unfair trade practices.

China has denied acting improperly and responded with threats of what it calls "teeth-to-teeth" retaliatory measures that include slapping higher levies on $50 billion in U.S. imports.

The NXP deal is considered critical for Qualcomm to improve its competitiveness by expanding its lineup of semiconductors to include chips for the automotive industry, security, and a variety of connected equipment known as the Internet of Things.

Worried that Beijing would scuttle the deal, Qualcomm Chief Executive Steve Mollenkopf raised the issue in a March 27 meeting with China's vice president, Wang Qishan, people with knowledge of the event said.

Mr. Wang sought to offer some assurances, the people said, telling Mr. Mollenkopf that regulators would review the deal through a "science-based process" and that politics would have nothing to do with it.

But people familiar with the matter say San Diego-based Qualcomm is facing resistance from China's Commerce Ministry, which has indicated that it will likely seek more information from Qualcomm for the NXP deal.

The Commerce Ministry faces a deadline next week to make a decision on the Qualcomm-NXP tie-up, according to one of the people. To keep the review alive, the companies could withdraw the current application and refile for an extension.

But Qualcomm also faces an April 25 deadline to complete its purchase of NXP.

For Qualcomm, diversifying its business portfolio by acquiring NXP was viewed as key for its growth, as its primary market of mobile handsets has reached a plateau. The deal is an important part of Qualcomm's plan for revenue growth after the Trump administration last month quashed a $120 billion proposed acquisition by Broadcom Ltd. of Qualcomm -- an outcome Qualcomm wanted.

For Toshiba, the longer it takes to sell the chip business, the higher the risk of losing its technological edge, as to keep up the competitiveness it must frequently make multibillion-dollar investments, a challenge for Toshiba with its unsteady finances.

As of April 1, Toshiba gained the right to cancel the deal with the Bain-led consortium under the original sale contract. Toshiba executives have said they want to go through with the deal, but some shareholders have said it should be scrapped. A lengthy delay in China would increase that likelihood.

Toshiba's financial situation has improved since getting hammered last year by the bankruptcy of U.S. subsidiary Westinghouse Electric Co., and a delay in the sale might even give Toshiba a chance to negotiate a higher price to reflect the latest market values. But further delay also means it will take longer for Toshiba to again compete against rivals, including Samsung Electronics Co.

Qualcomm didn't immediately respond to comment. NXP referred any questions to Qualcomm, its acquirer. A Bain representative declined to comment on the Toshiba deal. China's Commerce Ministry didn't respond to a request for comment.

Washington and Beijing have been embroiled in a trade spat that has become a key source of financial-market turbulence in recent weeks and raised concerns about a full-bore trade war that could drag down the global economy.

Having already tightened scrutiny of inbound deals from China, U.S. officials are also crafting sharp prohibitions on Chinese investment in advanced U.S. technology, taking aim at China's practice of using state subsidies to foster Chinese dominance of future frontiers of manufacturing.

Beijing, for its part, has blamed the U.S. for wrecking the global trade order and is campaigning to line up support from other countries, especially in Europe, whose companies could be given better access to China's markets should China react to stepped-up pressure from Washington by retaliating against the U.S.

So far, China has threatened to impose stiff levies on U.S.-made soybeans, sorghum and other products, mainly from the Farm Belt states that helped Mr. Trump win the election in 2016. It is also looking for retaliatory options beyond tariffs, government advisers and China analysts say, such as stepped-up regulation of American companies operating in China.

Putting off approvals of cross-border deals that could benefit U.S. firms is bound to further rattle policy makers in Washington as the two sides enter the next phase of high-stakes dance.

"Merger reviews and decisions should be based on consistent, scientific, market-based calculations and never the politics of U.S.-China relations, " said Jacob Parker, vice president of China operations at the U.S.-China Business Council.

Kosaku Narioka in Tokyo contributed to this article

Write to Lingling Wei at lingling.wei@wsj.com, Yoko Kubota at yoko.kubota@wsj.com and Takashi Mochizuki at takashi.mochizuki@wsj.com

 

(END) Dow Jones Newswires

April 13, 2018 10:19 ET (14:19 GMT)

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