The Qualcomm Broadcom saga is just getting silly now

Broadcom has reaffirmed its commitment to acquiring Qualcomm by lowering an offer that had already been rejected. Yes, you read that right.

The justification for this counter-intuitive move was Qualcomm’s decision to raise its bid for NXP, to placate some NXP investors and to reflect an increase in NXP’s share price since the bid was accepted over a year ago. There was considerable speculation that Broadcom might not be cool with this development but it’s response borders on the petulant.

“Broadcom today reaffirms its commitment to acquiring Qualcomm, and is adjusting its offer following the Qualcomm board’s decision to transfer $4.10 per Qualcomm share (or $6.2 billion of value) from Qualcomm stockholders to NXP stockholders,” said the Broadcom announcement.

“Broadcom’s proposed merger agreement otherwise remains unchanged, including the $8 billion regulatory reverse termination fee and 6% per annum (net of dividends) ticking fee accruing from and after the 12-month anniversary of the date of the merger agreement.”

The release concludes with the usual hectoring tone, berating the Qualcomm board for not doing the best by its shareholders and inferring that Qualcomm has been played by NXP activist shareholders. It concludes with another call to Qualcomm shareholders to show support for the Broadcom acquisition by appointing all six of its nominees to the Qualcomm board at the imminent AGM.

Qualcomm, unsurprisingly, is unimpressed by this latest development. “Broadcom’s reduced proposal has made an inadequate offer even worse despite the clear increase in value to Qualcomm stockholders from providing certainty around the NXP acquisition,” said the Qualcomm riposte. “Broadcom has refused and continues to refuse to engage with Qualcomm on price.

“In deciding unanimously to amend its original offer, made in October 2016, the Qualcomm Board concluded that Qualcomm is far more valuable with NXP than without, and took into account the following:

  • NXP’s non-GAAP operating income has increased by 20% – which means the $127.50 per share price is actually at a lower multiple than the original deal price
  • NXP provides significant strategic benefits to Qualcomm including increased revenue diversification, substantial expansion of total available markets (TAM) and greater scale in higher growth end markets of Auto and IoT
  • The strong market dynamics and positive outlook for key segments
  • High confidence in annualized cost synergies of at least $500 million based on integration planning

“Broadcom is well aware there is no ‘reduction of value by $4.10 per share’ because the transaction could not be completed at $110.00 per share.

“The Qualcomm Board is committed to maximizing value for Qualcomm stockholders, whether that be through executing its growth strategy or selling the company. Broadcom’s revised $79.00 per share proposal materially undervalues Qualcomm, fails to take into account the strategic and financial benefits of acquiring NXP, and continues to face a long and highly uncertain path to regulatory approvals.”

The long and short of it is that the respective boards are further apart than ever, it seems, and there isn’t really much point in discussing it further until the moment of truth at the AGM. That won’t stop the two of them publicly briefing against each other to win over shareholders and it will be interesting to see what Broadcom does if the AGM doesn’t go its way.

Qualcomm board unsurprisingly rejects Broadcom bid – what now?

Having mulled it over for a week the Qualcomm board has decided Broadcom’s unsolicited $130 billion bid for the company is too low.

We anticipated this in our initial analysis of the deal, with Qualcomm’s shares having traded at the offer price as recently as the start of this year. Since then they’ve taken a bit of a kicking thanks mainly to the Apple litigation, but the Qualcomm board presumably expects that to be resolved in a satisfactory manner, which could well result in a boost to the share price.

Qualcomm feels so strongly about rejecting the bid that it lined up three execs to stress the point. “It is the board’s unanimous belief that Broadcom’s proposal significantly undervalues Qualcomm relative to the Company’s leadership position in mobile technology and our future growth prospects,” said Paul Jacobs, Qualcomm Chairman.

“No company is better positioned in mobile, IoT, automotive, edge computing and networking within the semiconductor industry,” said Steve Mollenkopf, Qualcomm CEO. “We are confident in our ability to create significant additional value for our stockholders as we continue our growth in these attractive segments and lead the transition to 5G.”

“The board and management are singularly focused on driving value for Qualcomm’s shareholders,” said Tom Horton, Presiding Director for Qualcomm. “After a comprehensive review, conducted in consultation with our financial and legal advisors, the board has concluded that Broadcom’s proposal dramatically undervalues Qualcomm and comes with significant regulatory uncertainty. We are highly confident that the strategy Steve and his team are executing on provides far superior value to Qualcomm shareholders than the proposed offer.”

The regulatory uncertainty presumably refers mainly to the fact that if this acquisition went through it would concentrate a large proportion of the silicon and IP inside a phone in the hands of one player. It’s ironic that the very circumstances that have hit the Qualcomm share price this year – accusations of anti-competitive behaviour – are one of the biggest threats to this deal ever going through.

Now we are likely to see a good old proxy battle, in which the would-be acquirer bypasses the hostile board and starts appealing directly to shareholders in a bid to convince them it’s in their best interest to sell. There will probably be an increased bid to, say, $75 per share, followed by a bunch of propaganda in the media about what a great offer that is. Analysts seem to think a bid of around $80 per share might be enough to win them over.