Qualcomm’s board has once again unanimously rejected the higher acquisition offer from Broadcom. The deal between Broadcom Ltd and Qualcomm Inc would lead to the largest technology takeover deal in history.
Qualcomm says the $121 billion offer from Broadcom “materially undervalues” the company, and “falls well short of the firm regulatory commitment” needed to receive approval for such a transaction. Qualcomm’s board had unanimously rejected the first offer from Broadcom, and the semiconductor company raised its proposed price to $82 a share. In its proposal, Broadcom called it “best and final” offer for Qualcomm, and said the deal would be executed in the form of $60 in cash and the remainder in Broadcom shares.
The California-based company had initially offered $70 a share to acquire Qualcomm, and then raised it by 17 percent to $82 a share in a hostile takeover bid after Qualcomm’s board rejected its first proposal. Qualcomm has offered to meet with Broadcom to see if the companies can address the “serious deficiencies” in value and certainty in its proposal.
The second dismissal of Broadcom’s offer by Qualcomm means the decision will be in the hands of shareholders who will vote March 6 on whether to replace Qualcomm’s board with that of Broadcom’s own nominees. The vote will be based on two different strategies with Broadcom focusing on acquiring companies to boost its profits while Qualcomm promises a future growth fueled by switch to 5G and design of chipsets for connected automobiles.
“Your current proposal is inadequate as it materially undervalues Qualcomm. Your proposal ascribes no value to our accretive NXP acquisition, no value for the expected resolution of our current licensing disputes and no value for the significant opportunity in 5G,” Paul Jacobs, Chairman of the Board, Qualcomm wrote in an letter addressed to Broadcom’s President and CEO Hock Tan.
Qualcomm is the market leader in the design of mobile chipset and modems deployed for fast internet connectivity on smartphones. Broadcom CEO Tan has turned the company into one of the world’s leading suppliers of semiconductors by acquiring companies that offer value to its leadership. Tan is bidding for Qualcomm in order to get access to its modem-chip division, which would make Broadcom an undisputed leader in the mobile chip business as well.
Qualcomm’s biggest challenge is the ongoing legal battle with Apple, the world’s most highly valued company. Broadcom has a good working relation with Apple and this deal is being seen by analysts as an end to this lawsuit. Qualcomm’s second major problem is the fines imposed by regulators for abuse of its dominant position in mobile chip design.
The major source of Qualcomm’s revenue comes from the patent-licensing business and royalties earned for its modem chips deployed on most mobile devices. However, the smartphone industry is trying to fight the chip maker by arguing that Qualcomm is asking for excessive royalty for its chip patents.