Broadcom is considering a bid of more than US$100bn for Qualcomm, according to people familiar with the matter, in what would be the biggest-ever takeover of a chip maker.
Broadcom is speaking to advisers about the potential deal, said the people, who asked not to be identified because talks are private. The offer of about $70/share would include cash and stock and is likely to be made in the coming days, the people said. A final decision on whether to proceed has not been made, they said.
Qualcomm shares rose as much as 19% in New York in their biggest intraday move since October 2008. They traded up 12% at 2.23pm, valuing the company at $91bn. Broadcom rose 4.7%, for a market valuation of $111bn.
Representatives for Broadcom and Qualcomm declined to comment.
Broadcom CEO Hock Tan is a voracious acquirer, and he’s played a key role in a wave of consolidation engulfing the $300bn semiconductor industry over the last three years.
Broadcom, created in 2016 when Avago Technologies acquired then-Broadcom for $37bn, has built itself from a former division of Hewlett-Packard into one of the industry’s largest chip makers via a string of purchases. Tan has said he intends to seek more deals, a strategy that could be limited by opposition from US regulators.
Broadcom, a major supplier to Apple, said this week it will return its headquarters to the US from Singapore. The company already lists San Jose, California, as a corporate co-headquarters.
Qualcomm finds itself in a weakened state. Before today, its shares had slumped 16% this year, compared to a 41% surge in the Philadelphia Semiconductor Index — in part due to an escalating legal battle with Apple that’s costing revenue and jeopardising the business model that for years made Qualcomm one of the most successful chip makers in the world.
Apple fight
At issue are the licensing fees that Qualcomm charges for patents that cover the basics of how mobile phone systems work. Apple contends Qualcomm is unfairly charging too much and illegally taking advantage of its market position in chips. Qualcomm has countered that Apple, one of its largest customers, has lied to regulators in an unfair attempt to bully its opponent into charging less.
Qualcomm, based in San Diego, California, is also confronting headwinds in closing its $47bn purchase of NXP Semiconductors. The deal is facing regulatory examination in Europe and opposition from some shareholders including activist hedge fund firm Elliott Management, which has argued the offer undervalues NXP.
Aside from the financial challenges of such a large deal, Broadcom would also encounter close regulatory scrutiny. Based on 2016 revenue, the enlarged company would be the world’s third largest chip maker behind Intel and Samsung Electronics and give it a huge swathe of the supply chain of vital phone components such as Wi-Fi and cellular modem chips. The two companies are already among the top 10 providers of chips ranked by revenue in an industry that’s consolidating rapidly. — Reported by Ed Hammond, Dinesh Nair and Ian King, with assistance from Matthew Campbell, (c) 2017 Bloomberg LP