A Bloomberg news report by Alex Barinka, Ian King and Ed Hammond, stated that Broadcom Ltd. wasn’t planning to up its $105 billion offer for Qualcomm Inc. before next week’s meeting where a proposal to replace directors on the company’s board will be tabled. This proposal is being put forward by Broadcom.
Unnamed sources stated that Broadcom wasn’t planning to increase its $70 per share bid until they got closer to the March 2018 Qualcomm board meeting.
The current strategy being adopted by Broadcom is not to increase the offer price but to lean on the Qualcomm shareholders to help close the biggest technology acquisition in history.
Chief Executive Officer of Broadcom, Hock Tan, is putting pressure on Qualcomm to come to the table to discuss the deal or, if that doesn’t work, to force Qualcomm’s management to explain to its shareholders why they think that they are better off not selling the company.
Broadcom’s strategy is based on the fact that the company feels that there is strong support from Qualcomm shareholders for the acquisition. Therefore, the company is still hoping for a friendly deal, while preparing for a hostile takeover.
The Qualcomm board has rejected the $70 per share offer, however, they did indicate that they would be open to the deal if the price were increased by $10 per share.
Another reason why Broadcom may be delaying the offer is so that the NXP Semiconductors NV deal is resolved. Qualcomm is in the process of negotiating a deal to acquire the Dutch semiconductor company for $47 billion. However, the deal is being blocked by regulators at this time. Once the deal is clear by these regulators – which could happen as early as the end of 2017 – Qualcomm still has another hurdle to face. The chip maker will still have to convince NXP to tender 80% of its holdings. NXP stocks are currently trading above the current offer price, which is an indication that the company may be looking for the bid price to go up.
Qualcomm’s shares had dropped by about 20% since January this year thanks to the numerous controversies it was embroiled in. However, the company’s shares jumped up almost 13% after the news leaked that Broadcom was contemplating buying the beleaguered company. However, Qualcomm’s shares dropped by 2% after the company rejected the Broadcom offer. According to this news report by Barron’s, the company’s shares slid another 1% to $65.67 after the Bloomberg article was published. The company’s shares finally closed at $65.49.
Broadcom’s stock prices have grown exponentially under the leadership of Hock Tan, as he has successfully pulled off a string of acquisitions in his time. Broadcom’s shares have gone up more than 1,600% since 2009 when Tan took the helm. Tan’s modus operandi is to buy a company, focus on the company’s core competency and dumping expansionary projects, thereby reducing costs as well as making the company more efficient. The stock markets have generally approved of Tan’s strategy.
If this deal goes through, Broadcom will become the third largest chip maker, after Intel Corp and Samsung Electronics. This deal would also outshine Dell’s acquisition of EMC for $67 billion in 2016, which is the biggest technology acquisition in history so far.
If Qualcomm’s management continues to oppose the deal with Broadcom, then they will have to have a very strong argument to convince their board that the acquisition of NXP will gain Qualcomm entry into a whole new market for server components, PCs and cars, which would pay off hugely for the company.