By Ted Greenwald
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 14, 2017).
Qualcomm Inc. rejected Broadcom Ltd.'s unsolicited $105 billion
offer, setting up a potentially hostile showdown between two giants
of the chip industry over what would be the biggest technology
takeover ever.
A combination of the two would create a huge company whose chips
manage communications for consumer devices and appliances,
phone-service providers and data centers.
In a statement Monday, Qualcomm's board said the offer, which
Broadcom submitted last week, dramatically undervalues the company
and comes with significant regulatory uncertainty.
Broadcom said Monday it remains committed to the deal. "We
continue to believe our proposal represents the most attractive,
value-enhancing alternative available to Qualcomm stockholders,"
Broadcom CEO Hock Tan said in a prepared statement.
With Qualcomm's rejection of Broadcom's bid, both companies are
under pressure to press their agendas as quickly as possible. The
rejection could lead to a higher bid from Broadcom, and it sets the
stage for a possibly drawn-out struggle for control of the Qualcomm
board.
Broadcom could try to stack Qualcomm's board with directors
sympathetic to its goal. To do that, Broadcom has only a few weeks
to meet Qualcomm's final deadline for submitting its slate of
nominees, and only a few months to persuade Qualcomm's shareholders
to vote for them before the likely date of its next annual
stockholder meeting, according to a person familiar with the
matter.
Qualcomm, for its part, is under pressure to close its
acquisition, announced late last year, of automotive chip leader
NXP Semiconductors NV. That deal could add enough per-share
earnings to persuade investors that its value exceeds Broadcom's
bid, some analysts say.
Broadcom's pursuit also adds pressure on Qualcomm to settle its
differences with Apple Inc. over patent royalty fees. Qualcomm has
pursued its case in court, where it could take years to resolve.
But the conflict threatens to hold up billions in annual royalties
revenues, and it risks emboldening other customers and licensees to
follow Apple's lead. The prospect of a hostile takeover provides a
push to quicken the pace.
Qualcomm's decision was expected, analysts said, as unsolicited
bids often are rebuffed as a negotiating tactic. It signals
directors believe San Diego-based Qualcomm can boost its stock
price higher than the offer of $70 a share, a 28% premium to its
price Nov. 2, before The Wall Street Journal reported the bid was
imminent.
In mid-afternoon trading in New York, Qualcomm's shares were up
2.9% to $66.47. Shares of Broadcom, based in Singapore, were down
less than a percent at $264.62
The two companies have largely complementary product lines in
wireless communications, and some overlap in areas of that market
including Wi-Fi and Bluetooth. Regulators could balk at the
concentration of power in the combination, analysts said.
Broadcom has said it sees a clear path to approval. But
antitrust authorities already have challenged Qualcomm's business
practices in several countries, and the combined companies would
hold a dominant position in the wireless industry.
The bid takes advantage of Qualcomm's weakened position after a
year marred by the conflicts with Apple. over its patent royalty
fees and international regulators alleging anticompetitive business
practices.
The deal's future could hinge on each side's prospects for
resolving the dispute with Apple, which has withheld royalty
payments it owes for its use of Qualcomm's technology and has moved
to stop buying Qualcomm's chips. Qualcomm's profit in the fiscal
year ended Sept. 24 plummeted 57%, and its share price sank about
18% in the 12 months leading up to the bid.
"The positive on Broadcom's bid and Qualcomm's rejection is,
both companies believe Qualcomm's patent licensing business has
value and the dispute with Apple can be settled," said Mike
Walkley, an analyst with Canaccord Genuity Group Inc.
Apple first filed suit against Qualcomm in January, alleging
that the chip maker used its dominance unfairly to keep royalty
rates high and to block competing chip makers.
Broadcom's bid may provide motivation for Qualcomm to find a
resolution, said Chris Caso, an analyst with Raymond James. "It
adds flexibility to the Qualcomm side because they realize there's
enhanced value in getting this settled quickly: a better chance of
staying independent," he said.
Qualcomm could further strengthen its position by closing its
proposed $39 billion acquisition of NXP, the automotive-chip maker,
In its latest earnings call with analysts, Qualcomm CEO Steve
Mollenkopf said the company aimed to close the NXP deal by the end
of the year but it could slip until next year.
Closing that deal, though, has its own challenges. European
regulators suspended their investigation while waiting for Qualcomm
and NXP to supply documents. They have forced Qualcomm to offer
concessions, and may demand more. The deal awaits approval in China
as well.
Broadcom has said its bid for Qualcomm stands, whether the NXP
deal is terminated or completed at the original offer price.
However, that price may be difficult to hold. Investors have pushed
NXP's share price well above Qualcomm's original offer of $110 a
share.
--Cara Lombardo contributed to this article.
Write to Ted Greenwald at Ted.Greenwald@wsj.com
Corrections & Amplifications Qualcomm said its board of
directors has unanimously rejected a $105 billion takeover bid from
Broadcom. An earlier version of this article incorrectly stated the
amount Broadcom had bid in the sub-headline.
(END) Dow Jones Newswires
November 14, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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