Friday, December 01, 2017
Broadcom Ltd. isn’t planning to increase its $105 billion offer for Qualcomm Inc. ahead of a proposal next week to replace directors on its board, according to people familiar with the matter.
Broadcom doesn’t anticipate increasing its $70-a-share offer until closer to Qualcomm’s board meeting in March, said the people, who asked not to be identified because the matter is private. Broadcom plans to nominate directors to Qualcomm’s board ahead of a Dec. 8 deadline, the people said.
For now, Broadcom and its tough-negotiating Chief Executive Officer Hock Tan will lean on a direct appeal to Qualcomm’s shareholders in an effort to pull off the biggest acquisition in the history of technology. It’s a first step in an attempt to put more pressure on Tan’s target to come to the table or force Qualcomm’s management and board to explain to shareholders why the company, the biggest maker of mobile phone chips, is better off going solo.
Broadcom feels there is strong support for the merger from Qualcomm’s shareholders and is still hoping for friendly engagement, one of the people said. The timing of any improved offer isn’t definitive and could change, the people cautioned.
The current Qualcomm board rejected the $70-a-share offer. Investors have said they would sell if the offer was increased by at least $10 a share. Qualcomm shares were down 2 percent, to $65, in early trading in New York Friday.
Tactically, Broadcom, which has said it would prefer friendly negotiations, may be holding off on offering more until Qualcomm’s ongoing acquisition of NXP Semiconductors NV is resolved. That $47 billion deal is being held up by regulators. When clearance is received -- as early as by the end of the year according to people familiar with that matter -- Qualcomm will then have to persuade the Dutch company’s shareholders to tender 80 percent of their holdings. The stock is currently trading above the offer price, implying they expect a raise.
San Diego-based Qualcomm declined to comment and a Broadcom representative didn’t immediately respond to requests for comment.
The transaction is the latest in Tan’s push to reshape the semiconductor industry. He wants Qualcomm’s industry-leading phone chip technology to add to his growing collection of “franchises” -- technology capabilities that he believes are becoming increasingly important to makers of electronics.
Qualcomm is being pursued as it’s surrounded on all sides by challenges that have eroded its market value. The company is embroiled in a bitter legal battle with Apple Inc. over phone technology patent fees that the iPhone maker refuses to pay. That and regulatory actions around the world threaten its lucrative licensing business.
Executives at Qualcomm have argued that the Apple fight is merely a commercial negotiation that will eventually be settled, turning back on the flow of billions of dollars of royalties.
Broadcom’s stock price has surged under Tan’s leadership as the company has successfully pulled of a string of acquisitions. Wall Street has generally applauded Tan’s vision, pushing up his company’s shares more than 1,600 percent since 2009. He typically buys companies and then focuses on their core competencies while jettisoning expansionary projects and reducing the costs associated with them.
Buying Qualcomm would make Broadcom the third-largest chipmaker, behind Intel Corp. and Samsung Electronics Co. The combined business would instantly become the default provider of a set of components needed to build each of the more than one billion smartphones sold globally every year. The deal would dwarf Dell Inc.’s $67 billion acquisition of EMC in 2015 -- then the biggest in the technology industry.
If Qualcomm’s management and board continue to fight Broadcom, they will have to convince investors that their plans to parlay the company’s dominant position in phone chips into entrees for components in servers, personal computers and cars will pay off quickly.
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