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NXP: 'Pump-and-dump' victim or hunting for offers?

Posted: 14 Apr 2011 ?? ?Print Version ?Bookmark and Share

Keywords:NXP takeover talks? pump-and-dump operation? NXP stock price? Rick Clemmer?

A report circulated in the morning of April 8 claimed that Dutch chipmaker NXP Semiconductor N.V. was discussing a proposed takeover with Intel, Qualcomm and Broadcom. The company, however, refuted the story on the same day, its CEO Rick Clemmer insisting the company is not for sale.

The origin of the report was an unnamed banker talking to Dutch newspaper De Telegraaf, whereas Clemmer was quoted rebutting the story by Reuters.

So what is going on?

I can think of two potential explanations. One is the relatively straightforwardand in this case relatively ineffective'pump-and-dump' operation. The second is more arcane and fanciful.

In a pump-and-dump operation, stock traders acquire a position in a stock and then feed a false rumor into the market of some exceptional event such as a potential takeover bid. The stock goes up on the rumor and the originators clear their position at a higher price while others are still piling into the stock. Eventually the rumor is denied or, at least, fails to materialize and the stock returns to somewhere near its previous level.

The net result is that the pump-and-dumpers have made a quick killing at other stocker traders' expense.

There were a couple of instances of rumors of an ARM takeover in 2010 that had the classic signs of such an operation. One tell tale was those who follow ARM closely and understand its markets and relations could not work out who could benefit from acquiring the whole company when they could get nearly as much benefit from licensing IP, which is ARM's business model. CEO Warren East was diligent on each occasion to explain that he knew of no takeover approach and that he could not see the logic of one.

Courtship dance?
However, just because something is unlikely does not necessarily make it less effective as a share-price movement trigger; ARM's stock spiked on more than one occasion on the takeover rumor, despite East's comments. However, in the case of NXP, the stock price moved little on Friday and continues to track at just over $30 on Monday.

It is noticeable that the source is said to come from the financial community, which is the stock buying and selling community.

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