Broadcom bid rejected by Qualcomm

January 2018 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

January 2018 Issue

Mobile chipmaker Qualcomm Inc has rejected an unsolicited takeover bid from rival Broadcom Ltd as, according to Qualcomm’s board of directors, the offer undervalued the company and any merger between the two would likely face regulatory scrutiny.

Broadcom offered Qualcomm shareholders $70 per share, which consists of $60 in cash and $10 per share in Broadcom shares. The Broadcom offer represented a 28 percent premium over the closing price of Qualcomm’s common stock on 2 November, the last trading day prior to media speculation regarding a potential transaction, and a premium of 33 percent to Qualcomm’s unaffected 30-day volume-weighted average price. The total offer was valued at approximately $130bn on a pro forma basis, including $25bn of net debt. Had the merger gone ahead, it would have been the tech industry’s largest ever deal.

However, Qualcomm’s board unanimously rejected the proposal, setting the stage for outright hostility over the takeover attempt. “It is the board’s unanimous belief that Broadcom’s proposal significantly undervalues Qualcomm relative to the company’s leadership position in mobile technology and our future growth prospects,” said Paul Jacobs, executive chairman and chairman of the board of Qualcomm.

“No company is better positioned in mobile, IoT, automotive, edge computing and networking within the semiconductor industry. We are confident in our ability to create significant additional value for our stockholders as we continue our growth in these attractive segments and lead the transition to 5G,” said Steve Mollenkopf, chief executive of Qualcomm.

“The board and management are singularly focused on driving value for Qualcomm’s shareholders. After a comprehensive review, conducted in consultation with our financial and legal advisors, the board has concluded that Broadcom’s proposal dramatically undervalues Qualcomm and comes with significant regulatory uncertainty. We are highly confident that the strategy Steve and his team are executing on provides far superior value to Qualcomm shareholders than the proposed offer,” said Tom Horton, presiding director for Qualcomm.

Despite Qualcomm’s rejection, Broadcom remains committed to completing the deal. The company may choose to raise its bid, explore a proxy fight or launch a hostile exchange offer. If Broadcom opts for a hostile bid, Qualcomm’s governance rules would allow the firm to submit its own candidates for Qualcomm’s entire 11 member board by the 8 December nomination deadline.

Hock Tan, president and chief executive of Broadcom, said, “This transaction will create a strong, global company with an impressive portfolio of industry-leading technologies and products, and we have received positive feedback from key customers about this combination. We continue to believe our proposal represents the most attractive, value-enhancing alternative available to Qualcomm stockholders and we are encouraged by their reaction. Many have expressed to us their desire that Qualcomm meet with us to discuss our proposal. It remains our strong preference to engage cooperatively with Qualcomm’s board of directors and management team.”

Should an agreement be reached, the deal would create an industry mega power whose chips would manage communications for consumer devices and appliances, phone-service providers and data centres. The companies have largely complementary product lines in wireless communications, though there is some overlap in the Wi-Fi and Bluetooth space.

However, antitrust authorities could potentially balk at the size of the merged company, having previously questioned Qualcomm’s business practices in several countries. Qualcomm is already facing antitrust scrutiny over its attempts to close a $39bn acquisition of Dutch automotive chip-manufacturer NXP. It had initially hoped to complete the deal by the end of 2017, however in November European Commissioner for Competition Margrethe Vestager said that the decision may come in 2018. In order to achieve regulatory assent in the EU, Qualcomm has been required to offer concessions. There were fears the combined company could use incentives to squeeze out rivals and raise prices, as well change NXP’s intellectual property licensing model.

A merger between with Broadcom could help Qualcomm settle its long-running patent battle with Apple, as Broadcom is one of the tech giant’s main component suppliers. Apple is suing Qualcomm over fraudulent royalty charges, and Qualcomm has alleged patent infringement.

Richard Summerfield