Qualcomm Incorporated (NASDAQ:QCOM)
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2 Years : From Dec 2016 to Dec 2018
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.
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November 14, 2017 02:47 ET (07:47 GMT)
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