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Broadcom’s $103b buyout bid
January 04, 2018
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Los Angeles: When Broadcom proposed ousting Qualcomm’s board of directors on Dec. 4, it set in motion a high-stakes chess match for control of San Diego’s most iconic technology company.

The outcome could reverberate not only locally, but throughout the tech industry — possibly changing the landscape for firms such as Apple, Google, Microsoft and Intel.

Qualcomm invented technologies that manage cellular communications in every smartphone. The hostile takeover bid by rival Broadcom — launched after Qualcomm’s board rejected its $70 per share, $103-billion offer in November — looks like it will play out relatively quickly.

Qualcomm’s shareholders will vote on either Broadcom’s nominees or Qualcomm’s slate of candidates by the company’s March 6 annual meeting.

Strategies in this fight remain unclear. Both companies are being cagey about potential moves.

But analysts say Broadcom has the ammunition to raise its price for Qualcomm — perhaps as high as $100 per share — and still come out with a deal that contributes to earnings.

If Qualcomm’s board hopes to fend off Broadcom, analysts believe it must wrap up its slippery acquisition of NXP Semiconductors, which specializes in chips for automotive uses and the so-called internet of things: household and industrial devices that are network-connected. That would make Qualcomm less dependent on smartphones.

It also may need to consider new ways to mend its troubled patent licensing division and raise the specter of stiff regulatory resistance to a Broadcom/Qualcomm marriage.

All that, plus tout its leadership in the massive market opportunity from new, ultra-fast 5G mobile networks, where Qualcomm has been investing in core technology for nearly a decade.

“We are probably the best positioned company for 5G and the connected world,” said Chief Executive Steve Mollenkopf at a recent Economic Club of Washington, D.C., event. “We are sitting in a momentary spot where our revenue is a little bit difficult to model because of these licensing disputes. But those will get resolved, and what you’ll see is a company that really is providing the fundamental technology … into the connected world when the connected world is disrupting almost every industry.”

Even that might not be enough, however. Qualcomm’s ongoing legal battles with Apple and antitrust regulators over patent fees have weighed down its stock price.

Qualcomm’s shares slumped 18 percent this year before rallying in November on news of

Broadcom’s $103-billion buyout bid.

Meanwhile, Broadcom’s shares have soared nearly 60 percent this year. Chief Executive Hock Tan continues to deliver strong financial results. Revenue surged 33 percent for fiscal 2017.

“I am sure investors in Qualcomm — particularly as the semiconductor space has run up pretty significantly this year outside of Qualcomm — have gotten a little fatigued holding onto these shares that have underperformed,” said Abhinav Davuluri, an analyst with Morningstar.

“My guess is a lot of shareholders would think long and hard about taking it if you waved $80 (per share) under their nose,” added Bernstein Research analyst Stacy Rasgon.

Closing the deal with NXP

Qualcomm’s shares last traded above $80 three years ago. To get there again, analysts say the company needs to complete its $38-billion acquisition of Dutch chipmaker NXP.

The NXP buyout has yet to receive regulatory clearance in Europe, China and South Korea. Qualcomm expects to nail down approvals early this year.

Last month, activist NXP shareholder Elliott Partners began publicly lobbying fellow shareholders for a higher price from Qualcomm. Elliott pegs NXP’s value at $135 per share — 23 percent higher than Qualcomm’s $110 per share price.

Qualcomm stood by the current offer. But 80 percent of NXP shareholders must agree to sell their shares to Qualcomm for the deal to go through. To date only 2 percent have done so.

Broadcom says its buyout offer for Qualcomm stands whether the NXP deal closes at $110 per share or not. But Broadcom hasn’t said what it would do if Qualcomm agrees to pay more for NXP.

Analysts don’t expect Broadcom to walk away. Tan could boost his offer for Qualcomm on the condition that it jettison NXP, whose inclusion increases Broadcom’s debt load and regulatory risk over potential job cuts. NXP employs 31,000 workers globally. Broadcom has approximately 17,000 employees.


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