Financial Times

Qualcomm set to reject $130bn bid from Broadcom

by James Fontanella-Khan in New York, Arash Massoudi in London and Tim Bradshaw in Los Angeles, FT

November 6, 2017 | 5:23 pm
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Qualcomm is set to dismiss a $130bn unsolicited bid from rival US chipmaker Broadcom, setting up one of the largest ever takeover battles with both sides preparing for a long and vicious campaign.

 

The bid, which Broadcom unveiled on Monday, marks the culmination of a ferocious consolidation spree in the chip industry by Hock Tan, chief executive of the California-based company.

 

Qualcomm confirmed that it had received the “unsolicited proposal” and said its directors would assess it. However, the company is not prepared to engage with Broadcom, several people informed on the matter told the Financial Times.

 

One person close to Qualcomm said the $70-a-share offer was significantly below what the board would consider seriously. Another person described the offer as opportunistic, given Qualcomm’s share price has been depressed following a licensing dispute with Apple.

 

Both companies have a significant role in providing technology to manufacture smartphones, including Apple’s iPhone, which has also raised concerns over antitrust objections to the deal. A deal would create a company with a combined market capitalisation of more than $200bn and would be the largest ever in the technology industry. Broadcom said it was offering $60 in cash and $10 worth of Broadcom shares for each Qualcomm share.

 

The deal, which includes $25bn of net debt, has been made at a 28 per cent premium to Qualcomm’s stock price on November 2, the day before it emerged that Broadcom was preparing a bid. Shares in Qualcomm rose 4 per cent in pre-market New York trading to $64, giving it a market value of close to $93bn and adding to its gains from Friday when news of Broadcom’s planned approach leaked. Broadcom’s shares climbed 2 per cent to $279, reflecting a market value of around $113bn.

 

The offer was accompanied by a letter to Qualcomm’s board from Mr Tan, who defended the industrial rationale to combine the two companies, while playing down the antitrust risks.

 

Mr Tan has overseen a wider consolidation of chipmaking businesses over the past decade, but his tilt at Qualcomm would be his most audacious yet.

 

“We would not make this offer if we were not confident that our common global customers would embrace the proposed combination, and we do not anticipate any material antitrust or other regulatory issues,” he said.

 

Five banks — Bank of America, Citigroup, Deutsche Bank, JPMorgan and Morgan Stanley — have lined up to provide financing to Broadcom. Silver Lake, the US private equity group that has played a crucial role in Broadcom’s transformation, has committed to providing $5bn convertible debt financing to support the offer.

 

Broadcom said that its offer stands whether or not Qualcomm completes its planned $38bn acquisition of NXP Semiconductors, which has yet to close amid antitrust concerns in Europe.

 

Qualcomm’s mobile processors and modems, backed by a strong portfolio of intellectual property that underpins cellular communications in most modern mobile phones, have left it well placed as the rollout of 5G begins in the next few years.

 

Broadcom sells a wide range of chip designs for networking equipment, from back-end telecoms infrastructure to the WiFi and Bluetooth controllers in the latest iPhones.

 

Mr Tan, a Malaysian-born executive, has carried out a series of deals during the past few years that have turned a small company in the semiconductor world into a huge one.
Last week, he appeared at the White House alongside President Donald Trump to announce that Broadcom would switch its legal base and headquarters to the US, a decision that was seen as a prelude to further acquisitions. The move was expected to clear the way in the short term for Broadcom’s $5.5bn acquisition of Brocade.
The company, formerly known as Avago, had its planned acquisition of Brocade held up by a security review in Washington after redomiciling to Singapore to capture tax breaks. That move came after a $37bn takeover of Broadcom in 2016, which saw the company take its target’s name.
The offer comes as chipmakers are seeking to play a bigger role in the world of self-driving cars and the “internet of things”, while reducing their dependence on smartphone and PC makers. Since 2015, SoftBank has acquired the UK’s Arm Holdings for $32bn, Intel Corp bought Altera for $17bn and Qualcomm agreed to buy NXP.

 

Broadcom is being advised by Moelis & Company as well as the five banks involved in the bid financing as well as law firms Wachtell, Lipton, Rosen & Katz and Latham & Watkins.

 

Qualcomm is working with Goldman Sachs and Evercore, while Paul Weiss is acting as its legal counsel.

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by James Fontanella-Khan in New York, Arash Massoudi in London and Tim Bradshaw in Los Angeles, FT

November 6, 2017 | 5:23 pm
  |     |     |   Start Conversation

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