On November 6th, 2017, Broadcom made an unsolicited bid of $105 billion for Qualcomm and kicked off an ambitious attempt at the largest technology takeover ever in a deal that would rock the electronics industry. 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 a billion smartphones sold every year. The deal would dwarf Dell Inc.’s $67 billion acquisition of EMC in 2015 — then the biggest in the technology industry.
Broadcom’s CEO Lobbies White House
Broadcom’s original offer for Qualcomm came days after CEO Hock Tan visited the White House and told President Donald Trump the company would be moving back to the United States. Despite his bravado, Mr. Tan certainly expects regulatory scrutiny and needs friends in high places if the deal is to succeed.
Huge Reverse Breakup Fee
On February 9th, Broadcom agreed to pay Qualcomm a huge $8 billion breakup fee should regulators block the deal. Asked about the regulatory risk of such a mammoth semiconductor deal after years of consolidation in the industry, Tan told CNBC, “I’m kind of a frugal guy. You think I would sign up to pay $8 billion if there’s even a second thought?” As jaw-dropping as it sounds, the reverse breakup fee is market at 7.7% of the latest offer for Qualcomm.
Qualcomm’s Defense: Buy NXP
Qualcomm’s best bet to remain independent may be completing its own giant acquisition of NXP Semiconductors for $39 billion. Broadcom CEO has said his offer stands whether or not Qualcomm completes its purchase of NXP. NXP would give the combined companies a major presence in the fast-growing market for chips used in cars. However, buying both Qualcomm and NXP strains Broadcom’s limited acquisition funding.
Broadcom Raises Offer
On February 5th, Broadcom raised its offer to buy Qualcomm to $121 billion. On February 21st, Qualcomm raised its bid for NXP to $44 billion and then Broadcom cut its bid for Qualcomm by 4% to $117 billion. Broadcom criticized Qualcomm for not liaising with it before raising its NXP bid. Broadcom stated that its latest offer of $79 will automatically be raised back to the original $82 a share level in the event that Qualcomm is unable to complete the NXP deal.
On February 26th, Qualcomm set its asking price of $90 a share which puts Qualcomm in play but may put Qualcomm out of Broadcom’s reach.
Intense Regulatory Scrutiny
Despite both CEOs’ political maneuvering, a Broadcom-Qualcomm tie-up may face intense regulatory scrutiny. The two companies are independently among the top 10 providers of chips in an industry that’s consolidating rapidly. Together, they would have tight control of the supply chain for Wi-Fi and cellular modem chips, vital components in making phones.
Critical Shareholders Meeting
Qualcomm is in a fight for its life, which will culminate in the annual shareholder meeting scheduled for March 6th. Will shareholders give Qualcomm’s CEO more time to diversify Qualcomm’s business beyond a saturated smartphone market, or after three years of turbulent stock performance, are shareholders ready to bet on Broadcom’s CEO and his impressive track record of boosting returns by acquiring companies? Shareholders will cast ballots for Broadcom board nominees or for Qualcomm’s existing directors. The board election will determine whether Broadcom’s $117 billion hostile takeover – the largest ever in the technology industry – proceeds or is shelved.
Qualcomm Counter Punches with CFIUS
Just as shareholders were scheduled to weigh in Tuesday this week on Broadcom’s hostile bid for Qualcomm, an unusual investigation sought by Qualcomm resulted in the federal government issuing an order postponing the vote. Qualcomm encouraged the extraordinary order from the Committee on Foreign Investment in the United States, known as CFIUS, to postpone the shareholder vote on directors. Now Washington’s eyes are on what the deal means for China. In a letter published March 5th, Aimen N. Mir of the Treasury Department argues that the takeover, if completed, would weaken Qualcomm’s competitive position as the tech industry races to standardize 5G, to the benefit of Chinese rivals.
Today on March 7th, Broadcom pledged $1.5 billion toward U.S. research on 5G cellular if the company’s proposed acquisition of Qualcomm is allowed to go through. The company, currently based in Singapore, is in the process of re-domiciling in the U.S. and pledged Wednesday to create “a stronger combined American company” in its purchase of Qualcomm.
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