Broadcom Ltd made a $121 billion “best and final offer” on Monday to acquire Qualcomm Inc, ratcheting up pressure on its U.S. semiconductor peer to engage in talks on what would be the biggest ever technology acquisition.

The takeover battle is at the heart of a race to consolidate the wireless technology equipment sector, as smartphone makers such as Apple Inc and Samsung Electronics Co Ltd use their market dominance to negotiate down chip prices.

Qualcomm responded that its board of directors would review the latest offer, and declined to comment further until then.

Broadcom’s new $82 per share offer included $60 in cash and $22 in Broadcom stock. Its first offer, of $70 per share, in November comprised $60 in cash and $10 in stock. The increased stock component would subject the deal to a Broadcom shareholder vote.

Reuters first reported on Broadcom’s new offer on Sunday.

Qualcomm shares fell 4.3 percent to $63.20 at mid-afternoon on doubts about the deal’s prospects, as well a KGI Securities report that said Apple might drop the chipmaker in favor of Intel Corp to supply modem chips for its next-generation iPhones.

Broadcom shares edged up 0.2 percent to $235.77.

“Qualcomm and its board now have a tough decision, as this is a compelling offer in our opinion,” said analyst Daniel Ives of GBH Insights.

Singapore-based Broadcom is mainly a manufacturer whose connectivity chips are used in products ranging from mobile phones to servers. Qualcomm primarily licenses its technology for the delivery of broadband and data, a business that would significantly benefit from the rollout of 5G wireless technology.

Qualcomm is locked in a patent dispute with Apple over its licensing agreements.

“Qualcomm got where it did in the last 30 years with a business model hinging on intellectual property licensing that is, at this day and age, not sustainable. You can sell products, as Broadcom does, very successfully, and generate a very good return for your shareholders,” Broadcom Chief Executive Hock Tan said in an interview.

In a presentation issued on its website, Broadcom criticized Qualcomm’s management team, led by its CEO Steve Mollenkopf, for its total shareholder returns of negative 7 percent since 2005, while the wider semiconductor index has returned 106 percent.

n January, Qualcomm announced an ambitious 2019 profit target predicated on a new $1 billion cost reduction plan and resolving licensing disputes, including with Apple. Broadcom said there was no reason to believe Qualcomm’s latest initiative would be successful.

Broadcom also announced concessions to address Qualcomm’s concerns that their combination could take more than 18 months to secure regulatory approval, and that divestitures demanded by antitrust watchdogs could be financially burdensome.

Broadcom said it was willing pay Qualcomm a “ticking fee” if the transaction is not completed within its target of 12 months after any definitive agreement. It would also pay a significant “reverse termination fee” if regulators scuttle the deal.

Broadcom’s antitrust counsel, Daniel Wall of Latham & Watkins LLP, said in a filing with the U.S. Securities and Exchange Commission that Broadcom was willing to sell two Qualcomm businesses to resolve any antitrust problems. These are its Wi-Fi networking processors and RF Front End chips for mobile phones.

“There is no antitrust issue. The overlap is very limited in this transaction. People talk about us making even more commitments on the regulatory front, like adding hell-or-high water provisions, which are not a very well defined legal standard, and we chose not to include it because it would not add much incremental certainty,” said Tan.

By: DocMemory
Copyright © 2023 CST, Inc. All Rights Reserved