Qualcomm is preparing to fend off an unsolicited US$100bn takeover bid from Broadcom, arguing it undervalues the company, people familiar with the plans said.
Broadcom is preparing a $70/share offer for Qualcomm, which could come as soon as Monday, said the people, who asked not to be identified because the plans are private. Qualcomm will argue that the proposal, the largest ever technology acquisition, is an opportunistic move to buy the chip maker on the cheap, the people said.
While Qualcomm’s board and management will give the offer due consideration, the San Diego-based company will likely recommend that shareholders reject it, the people said. This would force Broadcom to pursue a proxy fight if it wishes to proceed. A Qualcomm spokesman declined to comment, and Broadcom didn’t immediately respond to a request for comment.
Qualcomm will make the case to shareholders that, in addition to a possible battle with the board, Broadcom may also face challenges from regulators, the people said. Broadcom has been trying since last year to secure approval for its purchase of Brocade Communications Systems, a substantially smaller deal. Qualcomm is likely to argue that a regulatory limbo could put it on a prolonged and uncertain path that would cast doubt on the value of the deal, the people said.
The combination of Broadcom and Qualcomm would create a colossus that controls key pieces required for any company that wants build a smartphone. Meanwhile, Qualcomm is in the process of acquiring NXP Semiconductors, another major chip supplier. If those two join Broadcom, it would be the world’s third largest chip maker, with huge sway over the supply chain for phones and a growing presence in connected cars and data centres.
Although Qualcomm’s stock jumped 13% on Friday after Bloomberg first reported on Broadcom’s plan to make an offer, the shares lag other chip stocks and are well short of the highs from last year. Qualcomm traded above $70 a year ago. That was before a raft of regulatory and legal challenges.
In January, Apple filed a lawsuit accusing Qualcomm of illegally misusing its leading position in phone chips to unfairly bolster profits from technology licensing. Qualcomm management said last week that the Apple suits would play out on court timetables, suggesting they won’t be resolved soon. Apple is considering dropping Qualcomm components from future iPhones and iPads, which would deliver a significant blow to the chip maker’s sales, people familiar with the matter have said.
Regulatory actions and investigations all over the world have raised concerns among investors. Qualcomm was slapped with record fines in South Korea and Taiwan and an antitrust suit by the US government.
Qualcomm has its own mega deal to worry about. The $47bn purchase of Netherlands-based NXP would be Qualcomm’s biggest ever. But it may be delayed until next year due to government scrutiny, particularly from the European Union and China, the companies have said. They had aimed to close the acquisition by the end of 2017. — Reported by Ian King, (c) 2017 Bloomberg LP