QCOM QUALCOMM Inc

Company thumbs nose at suitor Broadcom by raising its bid for NXP

By Ben Dummett and 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 (February 21, 2018).

Qualcomm Inc. pumped new life into its bid for NXP Semiconductors NV, raising its offer to $44 billion and locking up support from key stakeholders -- a move Broadcom Ltd. had warned could prompt it to end its $121 billion pursuit of Qualcomm.

The $127.50-a-share price for NXP, announced Tuesday, is the latest twist in months of maneuvering between Qualcomm and Broadcom for an advantage in what would be the largest tech deal ever.

Broadcom Chief Executive Hock Tan had stressed his offer for Qualcomm -- a deal that would forge the third-biggest chip maker by revenue -- depended on his target not raising its price for NXP beyond the original $110 a share. But as a higher price for NXP seemed increasingly inevitable, Mr. Tan recently softened his position, saying he would keep his options open.

Now the two rivals are headed toward a March 6 showdown in which Qualcomm shareholders are scheduled to vote on a slate of directors nominated by Broadcom. In another recent concession seemingly aimed at getting a deal done, Mr. Tan reduced his number of candidates from 11 to six, seeking a majority rather than trying to unseat the entire Qualcomm board.

Glass Lewis & Co., which advises big shareholders on corporate votes, recommended Tuesday that Qualcomm owners vote for all six Broadcom candidates, which would hand Broadcom's selections a board majority. The firm said Qualcomm's failure to achieve profitable growth and its continuing disputes with regulators and customers led it to "doubt the credibility of Qualcomm's stand-alone plan."

Qualcomm didn't respond to a request for comment about the advisory firms' criticisms. In its statement Tuesday, Qualcomm said despite the higher NXP price, it is "highly confident" in its fiscal 2019 road map to deliver between $6.75 and $7.50 in adjusted per-share earnings.

Institutional Shareholder Services Inc., meanwhile, recently recommended stockholders vote for four Broadcom candidates, leaving Qualcomm's candidates with a majority. A mixed board would "require appropriate and demonstrable flexibility on both sides," ISS said.

Qualcomm is looking to NXP to broaden its product line beyond its smartphone stronghold to automobiles, security and internet-connected devices, combined markets the company has projected will be worth $77 billion by 2020. Qualcomm believes those markets will give it a rich payoff for its investments in fifth-generation cellular technology, known as 5G, which will roll out in coming years.

Building momentum on the NXP deal allows Qualcomm to enter its shareholder meeting with evidence it can deliver on plans to move into fast-growing markets. The acquisition rests on the approval of Chinese officials, the last regulatory hurdle, and NXP investors throwing their support behind the deal.

Qualcomm made significant progress on that front, winning over Elliott Management Corp. and others, which had argued the original $39 billion offer for NXP was too low. Elliott had argued NXP, the world's largest developer of chips for automobiles, was worth $135 a share; shares of the Dutch company had traded above $110 since the summer.

Elliott, which owns a 7.2% stake in NXP, said Tuesday it agreed to tender its shares in response to Qualcomm's new $127.50-a-share offer. Qualcomm said it obtained binding agreements from other shareholders as well, for a total of 28% of outstanding NXP shares.

The revised offer came nearly a week after Broadcom and Qualcomm executives sat down together for the first time since Broadcom launched its takeover effort in November. Qualcomm has consistently maintained the $121 billion bid -- a price Broadcom lifted from $105 billion in what it said was a "best and final" offer -- undervalues the company, and that a deal would run into regulatory troubles. The meeting seemingly resulted in no progress toward an agreement.

In a statement Tuesday, Broadcom said the higher NXP bid "demonstrates the Qualcomm board's disregard for its fiduciary duty." The statement didn't address whether Broadcom would continue its pursuit, beyond saying the company was "evaluating its options."

"Qualcomm's board is still clearly rejecting Broadcom's offer, and by increasing its bid for NXP they're moving towards trying to remain independent," said Mike Walkley, an analyst with Canaccord Genuity Group Inc.

Broadcom could keep its bid or walk, but another option, he said, is reducing its offer ahead of the shareholder meeting to compensate for the additional $6 billion Qualcomm hopes to pay for NXP. "I don't think it's over just because Qualcomm raised its bid for NXP," Mr. Walkley said.

In raising its bid for NXP, Qualcomm also lowered the threshold for shareholder support to 70% from 80%, making it easier to complete the deal.

On Tuesday, Qualcomm shares fell 1.3% to $63.99, while shares of NXP jumped 6% to $125.56. Broadcom shares were little changed.

The Wall Street Journal reported earlier Tuesday that Qualcomm was set to sweeten its offer.

Qualcomm's NXP offer "reduces the chances that a Broadcom deal would go through at $82 a share," weighing on Qualcomm's stock, said Chris Caso, an analyst with Raymond James Financial Inc.

The NXP deal has been wending its way through international regulatory approvals for more than a year. On its recent earnings call, Qualcomm estimated it would take three weeks to wrap up the acquisition once China approves the deal.

"We are working hard to complete this transaction expeditiously," Qualcomm CEO Steve Mollenkopf said Tuesday.

Write to Ben Dummett at ben.dummett@wsj.com and Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

February 21, 2018 02:47 ET (07:47 GMT)

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