Good morning. My name is Beth, and I will be your conference operator today. At this time, I would like to welcome everyone to the Qualcomm to acquire NXP conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. John Sinnott, Vice President, Investor Relations, you may begin your conference.
Thank you, Beth. Good morning, everyone, and welcome to our conference call regarding the announcement of Qualcomm's proposed acquisition of NXP Semiconductors. A slide presentation and audio broadcast will accompany this call, and you can access them by visiting qualcomm.com. Our presentation and discussion today will include forward-looking statements relating to our current outlook, expectations, and beliefs, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Please review our press release announcing the proposed transaction, as well as our SEC filings for further details regarding these risks and uncertainties. Please note that the tender offer in connection with Qualcomm's proposed acquisition of NXP has not yet commenced, and our communication is neither an offer to purchase nor a solicitation of an offer to sell any NXP securities.
NXP shareholders are urged to read the tender offer statement and solicitation recommendation statement to be filed with the SEC when they become available, because they will contain important information about the proposed transaction. With that, I would like to turn it over to Steve Mollenkopf.
Thanks, John, and thank you all for joining us on short notice. On the call with me today are George Davis, our CFO, Rick Clemmer, CEO of NXP, and Dan Durn, CFO of NXP. We are very pleased to announce that we have reached an agreement to acquire NXP. We believe the combination will create the semiconductor engine for the connected world. With NXP, we will extend our mobile technology leadership and footprint into attractive growth opportunities. We will have the leading position in automobile, a strong mobile security position, as well as strength in the low-power computing solutions that are critical for consumer and industrial IoT. This is a highly complementary combination that we believe will increase our SAM by approximately 40% to $138 billion in 2020.
In addition to its strong technology roadmap and product portfolio, NXP has an excellent sales organization, serving both direct relationships across the relevant industries and a network of global distribution channels. We believe this provides an attractive new channel for selling our existing IoT products as well. NXP brings a broad suite of solutions and has differentiated its microcontroller business through the ability to support customers on a global basis and in multiple design centers at scale, much like Qualcomm has done in the mobile device ecosystem, and this has allowed them to achieve a leading position in their core businesses. This is also a financially compelling acquisition. We expect it to be significantly accretive to non-GAAP EPS immediately upon close, and we've identified $500 million in cost synergies. Our capital structure post-close will remain conservative, and we remain committed to maintaining a strong investment-grade rating.
We expect to de-lever quickly, giving us strategic flexibility and providing strong support for future capital returns to our stockholders. Qualcomm bet on mobile over 30 years ago. Our innovations and inventions have played a vital role in creating and accelerating the evolution of the mobile industry. From our early days of pioneering advanced digital cellular communication systems, to our innovation and leadership in system solutions for smartphones, we've embraced the complexity of bringing together secure and reliable connectivity, along with powerful but low-power computing graphics, sensors, imaging, and other technologies for the mobile device ecosystem. Today, more than ever, we are driving standards and innovation at the network level and at the chip level in order to meet the ever-increasing demands for flexible, reliable, secure, and ultra-fast mobile broadband solutions.
Our innovations have revolutionized the way people communicate with one another, and our technologies are now enabling entirely new business models. Many of the most popular applications used daily would simply not be possible without Qualcomm technologies. The graphics, processors, cameras, sensors, location services, 4G LTE, Wi-Fi radios, and other Qualcomm innovations that are enabling services like Uber, Instagram, and others. The world's information is in the hands of billions of people because we carry computers in our pockets, and that is possible because of Qualcomm's technology. Looking ahead to the Internet of Things, we believe our portfolio of technologies and communication systems expertise will be more relevant and valuable than ever.
Many of the same technologies that have made Qualcomm a leader in the mobile device ecosystem, along with those in our forward technology roadmap, will unlock vast new ecosystems and economic value as we bring the Internet of Things from its early stage today to widespread global adoption. For the last 30 years, we've connected people and some of the things around them. For the next 30 years, we will be interconnecting their worlds and everything around them. As mobile technology expands into new areas, our vision is to transform the world with intelligent, connected technology platforms. Over the past two years, we have laid the foundation for driving long-term value for our stockholders, customers, and partners throughout the ecosystem, putting us in an excellent position to lead through the next wave of growth. First, we are investing to expand our technology roadmap.
Just as we led each mobile technology transition from 2G to 3G and from 3G to 4G LTE, we are leading the industry to 5G in order to unlock the tremendous value of the 5G economy. We are pursuing new opportunities in fast-growing SAMs that build on our technology leadership, applying our core smartphone technologies into rapidly expanding adjacent opportunities in a highly disciplined way. We identified mobile computing, automotive, IoT, and networking as the areas where we can create the most value and generate the best returns, we are making focused investments in these areas. Our advances are driving the development of machine learning, computer vision, sensor fusion, and other autonomous driving technologies, which benefit from our expertise in low-power embedded computing. In our licensing business, we are continuing to develop the core technologies that drive industry standards and other important technologies across the globe.
Our technologies impact billions of people every day. We have established a framework that allows mobile device manufacturers, infrastructure providers, increasingly many other types of companies and industries to benefit from Qualcomm's portfolio of technology and related intellectual property. We have more than 320 CDMA-based licensees, including in China, where we've signed agreements with more than 115 licensees in less than two years that are consistent with the NDRC terms. We are also taking aggressive action to optimize our business model and create a more agile Qualcomm. We remain committed to an efficient cost structure while making focused investments to remain an innovation leader. We are improving operating margins while continuing to bring great inventions to market, such as our recently announced Snapdragon X50, the first modem of its kind designed for 5G, delivering multi-gigabit speeds.
We have also selectively pursued strategic M&A to accelerate and de-risk our growth agenda. With CSR, we added products, channels, and customers in IoT and automotive infotainment. With the pending TDK joint venture, we are enhancing our ability to address the increasing complexity of the numerous spectrum bands that need to be supported for LTE and 5G by scaling up RF front-end capabilities, where innovation and technology leadership will become increasingly important. As we've executed this strategy, we've maintained our strong balance sheet and commitment to attractive capital returns. Over the last seven quarters, through the third quarter of fiscal 2016, we've returned approximately $20 billion in capital to our stockholders through dividends and stock repurchases. We have built a foundation for profitable growth, we are in an excellent position to accelerate the pace at which we are extending our core technologies to new opportunities.
Today's announcement is strongly aligned with that strategy. This transaction is about complementary technology and scale. Together, we will have the leading SoC technology roadmap industry channels to win in the intelligently connected world. We will have leadership positions in several important areas. In mobile, we will lead in modem, SoC, connectivity, compute, security. In automotive, we will lead across multiple verticals at scale, combining our expertise in compute and multimedia with NXP's leadership in complete car infotainment systems, secure car access, body, in-vehicle networking and safety. As many of you know, auto business design cycles are multi-year, strong customer relationships are a high barrier to entry. Both Qualcomm and NXP are trusted partners in the global auto industry, NXP is the largest semi supplier to the industry on a complete solution level, going beyond components.
This is a key focus area for us. We see significant opportunity ahead as the growth of semiconductor content in cars is expected to outpace the rate of vehicle production growth itself as features proliferate from luxury vehicles more broadly through the industry. Together, we have the technology and expertise to win in the next generation of ADAS and autonomous driving vehicles. We believe that the development of ADAS will be similar to that of the smartphone, where the breadth of technology matters. ADAS is a rapidly developing area. With our combination, we'll be well-positioned to lead as the world moves to securely connected, fully automated cars. Qualcomm is already playing a critical role in the Internet of Things as many industries become mobile and connected.
With NXP, we will build our connectivity expertise in IoT with NXP's leadership in microprocessors, security, and sensors to become a leader in broad-based microcontrollers, secure identification, payment cards, and transit applications. IoT is an area where NXP's global network of distribution channel partners is a key asset, one that will allow us to bring our technology beyond the global mobile ecosystem. Of course, end-to-end security is a critical element of success in each of these areas. Accordingly, growth in intelligent connected devices is also driving demand for security. With the addition of NXP's established security expertise and solutions, which encompass secure connected devices, secure interfaces and infrastructure, and secure ID solutions, we will be able to deliver truly secure solutions on a global scale. We will also benefit from NXP's deep operational expertise in manufacturing and significant presence with foundry partners.
NXP's fabs have been an important factor in their success. This expertise will build on the manufacturing capabilities that we will have after our joint venture with TDK closes. As we expand our technology leadership, we are significantly diversifying our revenue stream beyond mobile with combined company mobile revenue of less than 50%. With our last reported fiscal year, Qualcomm had revenue of $1.7 billion from QCT adjacencies that include automobile, IoT, and networking, or about 10% of total QCT revenues. Combined, looking at Qualcomm and NXP's last reported fiscal years, revenue of $10.2 billion came from automotive, IoT, and networking, almost 30% of combined company revenue. Mobile solutions encompass just under 50%. We strongly believe that the combination of Qualcomm and NXP's deep customer and ecosystem relationships and distribution channels will drive significant revenue opportunities well into the future.
We also believe this is an efficient use of our offshore cash. The combined companies will have tremendous cash flow generation that will strongly position us for the future. With that, I'd like to turn the call over to George to talk about the financial highlights of this transaction.
Thank you, Steve. I'll take a moment now to briefly review the terms of the transaction. We intend to acquire NXP for $110 per share in an all-cash tender offer using a combination of offshore cash and new debt. The enterprise value is $47 billion. This is an extremely efficient use of our offshore cash position. The tender offer will not be subject to any financing condition. However, we have secured $11 billion in committed financing. The transaction, which we expect to close by the end of calendar 2017, is subject to regulatory approvals in various jurisdictions and other closing conditions, including the tender of a minimum number of NXP's issued and outstanding common shares. We expect to achieve $500 million in annualized run rate cost synergies two years after the transaction closes.
The savings are focused on improvements in cost of goods sold from the strength of our supply chain relationships and operating expense reductions related to overlapping costs. The $500 million savings will be in addition to the $1.4 billion cost program we announced as part of our strategic realignment plan and the $500 million in savings to which NXP has committed with respect to its merger with Freescale. The structure of the transaction takes advantage of our strong balance sheet, and we are deploying our cash in a capital-efficient manner. Our use of offshore cash enhances transaction efficiencies, unlocks value, and significantly improves our return on invested capital. We plan to use future offshore cash to service the transaction financing, enabling us to reduce leverage quickly, and we remain committed to a strong investment-grade rating.
We will maintain strong sources of liquidity through minimum cash balances and an increase of our revolving debt facility. We expect to retain global liquidity in excess of $8 billion. It is important to note that we are firmly committed to our current dividend program and to continuing to grow our dividend. We are also committed to share repurchases at a level that offsets dilution as we pay down debt. We expect to approach our pre-transaction leverage ratios within two years of close. As you can see, the strong cash profile of the combined company provides strong support for future capital returns to stockholders. Now I'll hand it back to Steve.
Thanks, George. While we don't expect the transaction to close until late next year, we are already intently focused on integration. Both Qualcomm and NXP have extensive integration experience, and we intend to immediately launch a rigorous integration planning effort. This collaborative effort will be led by leaders from both companies in order to bring together our very complementary companies and teams seamlessly. We have known and admired Rick, Dan, and many others on the NXP team for years, and we are very excited to join our great companies together. We have great respect for the semiconductor technologies that NXP has invented, and we can't wait to get started on new inventions that will enable more and more industries to benefit from the innovations we are both developing. Our shared commitment to innovation and operational discipline will enable us to accelerate the pace of innovation through focused investments.
I'd now like to turn the call over to Rick to say a few words before we take your questions.
Thank you, Steve. Good morning to everyone on the call today. We are very excited about the transaction announced this morning. We believe the combination of Qualcomm and NXP will complement and bring together all the technologies to realize our vision we've shared with most of you for secure connections for the smarter world. We view the combination as creating the semiconductor industry powerhouse, a world leader in advanced computing, ubiquitous connectivity, security, and high-performance mixed signal solutions, including microcontrollers. The transaction completes our capability to be the thought leader in the next generation ADAS solution. The new company will leverage the deep automotive domain expertise of NXP and combine it with the advanced computing and connectivity capability of Qualcomm to address the requirements of deep learning, automotive vision systems, and the requirements for next-generation automotive domain control.
In IoT, prior to the acquisition, NXP was very well positioned to address the demands of the next-generation smart connected devices for the next few years. With this transaction, it will accelerate and expand the capability with Qualcomm's strong position in wireless connectivity, which will ideally complement NXP's leadership in low-power, Arm-based microcontrollers and industry-leading device security. This will enable the delivery of the most complete solutions to our customers and partners. In summary, we view the transaction as positive to all of our stakeholders, our employees, our customers, and our shareholders. The combination of Qualcomm and NXP will be the leader in secure connected devices for the next decade.
Thanks, Rick. We are very excited about this transaction and the opportunities to transform the world with intelligent, connected, and secure platforms. Together, we will be even better positioned to empower customers and consumers to realize all the benefits of the intelligently connected world. With that, I'd be happy to take your questions. Operator?
If you would like to ask a question, dial star one on your telephone keypad. We ask that you limit to one question and one follow-up. Your first question comes from Sachin Shah, Albert Prieb. Your line is open. Excuse me, Rod Hall, JP Morgan. Your line is open.
Yeah. Hi, it's Rod Hall with JP Morgan. Thanks for the question, guys, and congratulations on this deal. We really like it from a strategic point of view and a financial point of view. The questions that are coming into us this morning are mostly related to the timing of the close and whether that relates to the regulatory review process. I'd like to get you to comment a little bit on whether that is the case. Is the late 2017 timing related mainly to the regulatory review, or is it just the complexity of the deal overall? Could you also walk us through how you believe the markets will be defined in that regulatory review and just kind of any other color you can give us on that review process?
Yeah. Hi, Rod. This is George. From a regulatory standpoint, we see about nine jurisdictions today that we would need to go through. In general, the timetable really reflects our perception of just the time it's going to take to get through all these regulatory bodies. This is a highly complementary deal, so we're expecting it to be received that way. It really just reflects the amount of time that we think it takes us to get through all the bodies.
George, just a follow-up to that. Thanks for that answer. Could you just give us some idea, so you're saying you will raise new debt. Can you give us some idea on the timing of that? Is that on down the road a ways, or will that be relatively soon?
We have secured bridge financing for the deal, sufficient when combined with our offshore cash to fund the deal entirely. It is an all-cash deal, so that's in place today. We have no financing covenant or out in the deal. We're committed.
Great. Okay. Thank you very much, and congratulations again.
Your next question comes from Stacy Rasgon, Bernstein Research. Your line is open.
Hi, guys. Thanks for taking my questions. I wanted to ask about the price. Can you tell us a little bit how you settled on that, and are you concerned with getting a sufficient shareholder approval at $110?
Hey, Stacy, it's George. I think if you look at the price, first, from our standpoint, we've always been a disciplined cash-on-cash returns player when it comes to M&A. We think this deal looks attractive to our shareholders and to NXP shareholders. I think whether you look at EV to revenue or the PE multiples, I think both shareholders from both sides can look at this deal and feel that they're getting fair value in the transaction. If you look at the premium on the undisturbed for NXP, that also, I think, will be seen as attractive. We think the logic of the combination is quite good. Shareholders will see that. It's very consistent with the strategies of both companies, and I think from a valuation standpoint, both companies can feel good.
Added to that, our shareholders will also see it as a very efficient use of our offshore cash, not only in terms of the reflection in our return on invested capital but also the fact that we can quickly delever through the use of offshore cash to retire the transaction debt. I think there's plenty to point to from both sides to support this deal.
Got it. For my follow-up, a question for Rick and Dan. Why is now the right time to sell?
Stacy, I think it's interesting when you think about it. I think we had made good progress with where we were. We felt good about our portfolio. When we look forward, especially like in ADAS, for example, I think over the last few quarters, Kurt and I have begun to realize that we really needed some expanded computing capability to be the leader in ADAS, that we need to have machine learning capability that frankly, we didn't have internal. That had become a challenge that we needed to be sure that we could address to be sure that we could be the leader in autonomous driving as it moves forward.
In addition to that, when you think about IoT, we were positioned okay on the connectivity front today, but when we look out a couple of years, we clearly needed a much broader connectivity platform than we had. We think this is really attractive. The combination is truly going to be an industry leader and will position the company well going forward.
Yes. Your next question comes from the line of Mike Walkley, Canaccord Genuity. Your line is open.
Yes. Thank you very much, gentlemen. This is Matt Ramsay on for the combined team here at Canaccord for Mike. Steve, I'd like to get your perspective, stepping back from this transaction, this is one that we've been discussing the potential for and have been proponents of in our conversations with investors for a while. It seemed to me that you guys had a few directions that you could go. One, maybe doubling down on your core competency in wireless. Two, a transaction like this to really diversify the business and maybe three, a succession of smaller, maybe growth and margin accretive QCT deal. It'd be great to hear your perspective on how you guys thought about those different options and settled on this type of transaction.
Sure. Matt, it's a really good question. I think for us, if you just look at the next two decades, I think we view the car and the Internet of Things to be very similar to what I would've looked at the handset in the 2000 timeframe. Meaning, the technology and the pace of innovation in automobile and IoT will increase dramatically. I think we look at it and say, boy, what a tremendous opportunity to extend the technology roadmap that we have in mobile and really drive those two businesses or those two opportunities moving forward. We've always had a great relationship with the NXP folks, admired their business and their team.
I just felt like it was the right time to put together something a little bigger and really put together the team that we think can really drive the next couple of decades of innovation in those markets. We just thought it was the right time to move forward. As you know, we've been doing a lot over the last couple of years to really get the business in a position where it could really take an offense move and really take advantage of the opportunity. We think we have that. It's a tremendous team, tremendous portfolio of leaders as well as customers, and we think it's a great position to be in.
We view the next really several years in the car, and then, the following decade of the IoT, it's going to be tremendous change to the way in which you deliver semiconductors and having a breadth of technology, the SoC expertise, we just think that's a winning hand, and we saw the opportunity to combine two great companies, and we just took the opportunity. We're excited about it.
Thanks for that. As a follow-up, George, maybe yourself or maybe Dan could address this. It was a little bit of a surprise to us, going back a couple of weeks now, to see the transaction done in an all-cash format. Qualcomm's going to be diversifying itself tremendously here, and maybe you could comment a bit about any mechanisms in place to retain key senior management in the channel and in the automotive and IoT businesses as this transaction comes to fruition. Thanks.
Matt, hi, it's George. We think the all-cash provides a compelling use of our offshore cash and is one of the things that in addition to just the inherent value of the combination, is quite attractive to our shareholders. I think it's a separate issue to, I think, any of the other considerations, and again, I think I would still come back and point to the fact that we're looking at a transaction that regardless of the funding source, the industrial logic of the companies coming together and the fact that if you look at the strategies of both NXP and Qualcomm, very complementary assets, and very complementary needs to address the markets going forward.
I think both management teams see that, and as we went through the process of understanding each other better that you do as part of preparing for this type of acquisition, both sides were quite excited by what each could bring to the table. Many capabilities that both of us feel will be important going forward. I think that's the best retention tool of all.
Your next question comes from the line of Tim Long, BMO Capital Markets. Your line is open.
Thank you. One question and a follow-up. First, I guess, Steve, as far as running the semiconductor business, obviously, you guys fabless never really were running a fab. Could you talk to us a little bit about how you envision running the two companies together? If the answer is they're going to be run separate, then maybe walk us through where those synergies come from. Then second, on the NXP side, sounds pretty positive on the combination here. On the deal terms, why not a little bit of stock component to it so that the NXP shareholders can participate in the upside? Thank you.
I'll take the first one. Tim, on the integration, at a high level, we expect to have one diversified semiconductor business, run it that way, we expect the leadership team to be made up from senior people from both sides, and that's how we're planning it right now. Given the strength of both teams, I think that makes probably the most sense. From the perspective of operations and how you get these two teams, I think both teams have significant expertise in the operations of a large semiconductor business. It's varied. Both sides have expertise in different areas, and in many cases, the same area. It's a very diversified business from a supply chain perspective and the diversity of expertise.
As is no secret, we have, on the Qualcomm side, a fairly large semiconductor operation, and we're looking forward to having a different level of expertise and a different area of expertise coming in as part of NXP, and we expect to have a significant representation by that team on the management team.
Okay. Then the stock component?
George, do you want to take that?
Yeah, I'll come back to that. Again, I think ultimately at the end of the day, you have to take a look at the value that's on the table, whether it's cash or stock. We think both boards were unanimously supportive of the deal as it is structured because it represents good value for both companies. All cash is uniquely appropriate to Qualcomm because of the structure of our balance sheet. The value is appropriate for both shareholders. I think that really was the logic behind an all-cash offer.
Okay. Thank you.
Your next question comes from the line of James Faucette, Morgan Stanley . Your line is open.
Thank you very much. I just wanted to ask a couple of follow-up questions. First, as far as the structure of the company goes, as Tim was suggesting, it's a lot different type company than Qualcomm at least has operated in the past. Can you maybe give a little more color of how you think that the two management teams can mesh together and what that looks like going forward? My second question is, clearly with the debt that will be taken on, et cetera, and your comments that you want to de-lever quickly, that may have some impact, but maybe George, can you talk a little bit about how we should think about long-term capital return commitments and if and when you may be able to get back to that 75% of free cash flow return commentary that you've made in the past?
Thank you very much.
James, this is Steve. I would look at it as there are different product areas that today across two companies have, I think, very capable leads. For example, I'll just highlight Kurt's business on automotive, very strong business. What it really needs from Qualcomm is exactly as Rick laid out. We provide technology and hopefully support from the supply chain point of view, and it's a tremendously strong business, and we want to slot that into Qualcomm and let it thrive. Similar for the IoT business as well. I think you should think of it as the cultures are very similar within the product areas. When you talk to the leads, they're focused on the same thing, innovation, customers, speed of delivery, all the same things. We'll have a broader semiconductor business in that regard.
As you can imagine, at this point in the transaction, there's still a lot of things to work out, we expect there to be a lot of opportunity to grow those businesses with a shared technology roadmap. When we talk to the leadership team, I just echo something that George said earlier, there's a lot of excitement about the transaction. I think the opportunity to assemble, I think the key assets in the industry and to do that upstream of what we think is a decade of a large amount of disruption and to drive that from a leadership position, I think the teams are very excited about it, particularly from the point of view that there's a lot of pride of ownership in these businesses, our job as a management team is to feed into that.
I'll take the de-levering. The combined companies are going to have EBITDA well in excess of $10 billion a year, which will allow for very rapid de-leveraging. At the same time, if anything, it improves our ability to provide attractive long-term returns to our stockholders. I will say, even during the period of de-levering, we have maintained the commitment to grow the dividend over time. We've said we would be maintaining anti-dilutive share repurchases. Perhaps not at the same level as 75%, I think as we get closer to coming out of that two-year period, we'll have a conversation about where our capital return program goes from there. Our commitment is strong. The strength of our cash flow and balance sheet will certainly support attractive returns to shareholders, I think it'll be a good conversation once we get through that period.
Your next question comes from the line of Kulbinder Garcha, Credit Suisse. Your line is open.
Hi, can you hear me?
Yes.
Hi, it's Kulbinder from Credit Suisse. Thanks for the questions. Just a couple. The first one is, are you guys not communicating any revenue synergy targets for this? There should be some revenue synergy, I assume, but if you're not going to communicate them, can you give us a sense of what the top two or three are in your mind? The second one is maybe strategically, I guess a lot of options were considered during this deal. I guess with the combined entity, would you argue that licensing is less relevant synergistically with the rest of the business? Because you considered a split last year, and you decided against it. Is that now something you would consider again in the future? Thanks.
Yeah. I couldn't quite hear the first question.
The first question was revenue synergies.
Oh.
I'll take the second one.
Oh, yeah. Absolutely. Okay. On revenue synergies, we're not providing an estimate of revenue synergies. Clearly the complementary nature of this and the ability to bring new solutions into the marketplace, because we have a combination of technologies that either company couldn't bring by themselves, we think will provide revenue synergies that we'll be able to talk about as we go forward. Right now, we're just committing to the cost synergies, which are in addition to the cost synergies both companies have already committed to.
Yeah, maybe if I could just add one thing on the revenue synergies. I think when you look at it, one of the real opportunities is in automotive. Clearly, when you look at the revenue contribution that will come from that'll be out a few years. That won't be something that'll happen in the near term associated with it. The opportunity to bring together the technology from both companies to be able to address solutions is a significant opportunity and should create significant opportunities for upside in revenue in the future.
Then, Kulbinder, to your question about licensing. I think I wouldn't make the conclusion that it's any less important. It continues to be an important business for us. If you were to look at 5G, we are obviously investing to make sure that we drive that into industries, a lot of 5G is about how do I take mobile and enable it to be used by new industries, not just the traditional cellular industry. Having a stronger product portfolio and product breadth and more customers that you can deliver products into, I think that helps the licensing business. We still have a tremendous focus on the licensing business and think it continues to be and will continue to be an important component of Qualcomm moving forward as you would expect.
Thank you.
Your next question comes from the line of Tal Liani, Bank of America. Your line is open.
Yes. Thank you. First, I want to ask about the structure of the deal. You structure it as a tender that allows NXP to accept another bid or another proposal until the very end of the deal, that's a much longer period of time versus a merger structure. The question is, why did you choose a tender and not a merger? That's number one. Number two, you discussed closing the deal in about a year. Does it mean you do anything between now until the deal closes? Anything in terms of restructuring, any expenses related to the deal, any cost savings, or will it all start after you close the deal? So that means when you talk about the two-year period, for example, it's two-year period after the deal closes about a year from now. The third question is, NXP itself had gone through acquisitions and mergers.
You acquired some companies, certain things went right, certain things went the other way. What do you have in mind in terms of a process to put in place in order to make sure the execution of this large merger is going smoothly? What are the things that you learned in the past that you're going to implement now that will help you to execute it smoother? Thanks.
Yeah. Tal, the tender approach is really a reflection of the fact that there's a Dutch entity involved with a U.S. entity. It's the structure that we felt was required.
I think there was a question about the timing of should they think about it starting a year from now, or are there actions we're going to take within the year is the other question.
I think that we'll take the integration activities between the two companies, the planning for that will begin immediately. We're obviously limited on the things that ultimately we can do together until the close, but there will be a tremendous effort on both sides to make sure that this gets off to a very fast start.
Your third question was really about execution, risk of execution. I would say we, and I would acknowledge the fact this is a deal larger than I think anybody's dealt with. That being said, I think both teams have expertise in this, and there's particularly, I think, some very good process and learnings from the NXP Freescale integration, which we've been talking about. I think we'll also bring in an external partner to help us as well. There's really, I think, a good roadmap across the two companies that we can share to make sure that we get the integration right. It'll obviously have the focus of the senior management team, and the senior management team will be driving that to make sure that goes. There'll be timelines along the way that we'll be sharing with our internal teams as well.
Your next question comes from the line of Chris Caso, CLSA. Your line is open.
Yes. Thank you. Good morning. The first question is regarding the cost synergies, if you could provide a bit more detail on where you're looking for those cost synergies. Specifically, you talk about 35% attributed to COGS. I would assume that some of that is from the Qualcomm side. Additionally, I know that Qualcomm was already pursuing some of the markets where NXP is already strong. Is there some savings from redirecting those efforts?
Yeah. On the cost synergies front, you've got the percentages right as we see them today. I would say, not just in COGS but in OpEx, we'll look across both companies. Both companies have just gone through very significant cost reductions. So we'll expect that most of these will tend to come from overlap areas between the two companies. Then obviously on COGS, I think we believe our supply chain position can help drive some of these savings.
Okay. Thank you. As a follow-up, I guess the NXP divestiture of the standard products business was already in progress. Should we assume that should continue? Additionally, are there other parts of the NXP portfolio that you might consider to be non-strategic? Is there potential for some pieces of the NXP business to be divested following a review?
Well, on the standard products, we've now passed all the regulatory hurdles associated with that, including the U.S. and all the regulatory agencies around the world. The only roadblock to closing the transaction is the ability to separate that from our current business, which we plan on being able to achieve in first quarter of 2017 and are still on track to achieve that. In terms of the remaining portfolio within NXP, again, highly complementary. We like the positions that the company has established across industries. We don't have any targeted dispositions that we would put on deck at this point.
Great. Thank you.
Your next question comes from the line of C.J. Muse, Evercore. Your line is open.
Yeah. Good morning. Thank you for taking my question. I guess first question, as you look at the combination, and I know it's very early, but can you share your initial thoughts on plans for integrating sales as well as other client-facing employees?
Sure, C.J. This is Steve. I think the sales asset in NXP is a tremendous asset, actually. I think the way we would look at it is that we should really leverage that to sell more of the products that we have. That's an area where I would expect us to see really one organization working here post the integration.
Okay. Very helpful. I guess as my follow-up, just a couple deal questions. In terms of debt, I think you said you wanted to manage the combined company with $8+ billion in cash, which suggests roughly $20 billion of debt. Is that fairly accurate? Should we assume you're borrowing offshore? Can you share what kind of financing rates there are there? Then, I guess added on to that, what kind of combined tax rate should we be thinking about longer term?
Okay. Post the close of the transaction, when you combine our existing debt, their existing debt, the acquisition-related debt will be at about $30 billion in debt overall, which we will start deleveraging immediately following and expect that to come back down more towards the levels of what you were estimating after that two-year period. Again, the financing rates, we'll have to see what's in place as we put the structure and time. We haven't forecasted that. Both companies have very efficient tax structures. We would expect those to continue going forward but aren't forecasting the long-term view yet.
Okay. Very helpful. Thank you.
Your next question comes from the line of Tavis McCourt, Raymond James. Your line is open.
Hey, guys. Thanks for taking my question. First, a financial one. In the meantime, in the next 12, 15 months, would you expect the share repurchases to be at their recent historical rates, or will you start accumulating cash on the balance sheet in preparation for the transaction? Secondly, do you have an estimate of the annual repurchases that'll be required given the dilution at Qualcomm and NXP to keep the share count anti-dilutive? Thanks.
Yeah. Post this announcement, we'll be retiring stock to maintain anti-dilution and through the close of the delevering period, which again, we estimate to be about two years post the close of the transaction. We have not provided an estimate yet of what the annual share repurchase, just that we will ensure that it's anti-dilutive.
Steve, can you repeat the diversification benefits you did in the prepared script? I think you said below 50%. I assume you were talking QCT only, but if you could kind of run through that maybe a little slower, that would be helpful. Thanks.
Sure. Actually, maybe I'll ask George to do it. There's a slide in our investor deck that I think it might be helpful for him to
Go through and might be helpful for others as well. Sure. I think if you look at the slide called revenue extension beyond mobile, it shows the combined companies going from, if you think about QCT as our mobile products business, that's about 61% of the mix today. That goes to under 50% at 48% with the combination. Auto, IoT, and other moves from about 8% overall to close to 30% post the combination. Then licensing would represent 31% today and 23% post the combination. Great. Thanks very much.
Your next question comes from the line of Vijay Rakesh, Mizuho , your line is open.
Hi, guys. Steve and Rick, congratulations. Just a couple of questions here. When you look at the NXP side, obviously about 55% outsourced. Do you expect to increase that outsourcing mix there, especially as both of you have TSMC as a common foundry there?
You're talking about on the NXP side, Vijay?
Yeah.
What we've said is, as we continue to grow, that most of our growth will be from outsourced foundry partners because all of the new technology is outsourced from our foundry partners. Clearly that number would continue to grow on an NXP standalone basis. With the combination, obviously, Steve and George will have to come back to that as we get through the integration. Rick, I think that's a good point. It's one of the things that underpins the opportunities for synergies on the COGS side is we've been established in a fabless model for a very long time, we think we can help there.
Got it. Then post all the cost synergies that you laid out, $500 million per year or two years, where do you see the combined operating margins longer term? Both of you now have 30% plus, I guess, operating margin. Post the synergies, where do you see that kind of pacing out? Thanks.
Yeah. We haven't put out the revised target for the combination, again, fundamentally we'll see synergies on top of the combined performance that both companies are going to bring into that. Again, we see the opportunity for, as we talked about, revenue synergies will also be additive to that over time as we bring the teams together.
Great, thanks.
I will now turn the call back to our presenters. Steve Mollenkopf, closing remarks.
Thank you. We are incredibly excited about today's announcement and for these two fantastic organizations to join together. Thank you all for listening today.
This concludes today's conference call. You may now disconnect. Thank you.