After months of a takeover battle, Qualcomm finally met with Broadcom to discuss the valuation offer and to evaluate its USD 121 billion offer, reports Reuters. This comes right before the former’s shareholders are slated to vote on March 6, on whether a majority of the company’s board would be replaced with Broadcom’s nominees.
This is the first time Qualcomm, which has resisted Broadcom’s acquisition attempt since November 2017, agreed to engage in negotiations. While both companies refused to comment on the meeting, Qualcomm released a statement saying that its board will soon be meeting to determine the next step.
It was in November 2017 that chipmaker Broadcom first offered to acquire wireless chipmaker Qualcomm at USD 70 per share, to bolster its portfolio and create a global entity offering a variety of semiconductor and communications solutions. The deal could have potentially been the largest tech acquisition in history.
At the time, Qualcomm did release a statement saying it would “assess the proposal in order to pursue the course of action that is in the best interests of Qualcomm shareholders.” The company later rejected the offer saying that the deal undervalues Qualcomm, beginning a really long drawn takeover battle in the technology industry.
Undeterred by Qualcomm’s rejection, Broadcom had nominated 11 directors to replace the company’s board, putting fresh pressure on the chipmaker as its annual stockholder meeting is scheduled for March 6.
Last week, Broadcom offered Qualcomm a revised deal at a higher cost of USD 82 per share from the original offer of USD 70 per share and even offered to pay a breakup fee of USD 8 billion if the deal is blocked by antitrust regulators. However, Qualcomm’s board unanimously rejected the offer, citing that the company was being undervalued, and said it “fell well short of commitments on regulatory issues.”
In a financial release on February 12, the company disclosed that it has already secured a committed amount of USD 100 billion from 12 financial institutions including Morgan Stanley, Citigroup, Wells Fargo, J.P. Morgan and Bank of America Merrill Lynch. Another USD 6 billion worth of convertible notes is to be financed by Silver Lake, KKR and CVC.
Broadcom then started targeting individual shareholders to gain influence from within, further increasing the pressure. While that too failed to make the board budge, Qualcomm finally agreed to meet Broadcom and discuss the matter, and a date was set for February 14.
Just a day ahead of the planned talks, Broadcom upped its ante by scaling back the number of directors to six from its earlier proposal of 11, and said it “would withdraw its offer if it was not accepted by Qualcomm's executives or unless its six nominees were elected at the shareholder meeting.”
This takeover battle plays a pivotal part in consolidating the wireless tech equipment industry, as smartphone makers like Apple and Samsung have been negotiating lower chip prices by taking advantage of their bigger market shares.
To sweeten the deal further, Broadcom has even added an annual “ticking” fee of 6 percent on the cash portion of the offer, if the deal is not closed within 12 months.
Would it be the largest tech acquisition or a hostile board takeover? Only time will tell.
UPDATE: On February 20, Qualcomm agreed to buy NXP Semiconductors for USD 44 billion, its sole way of strengthening itself against Broadcom's takeover onslaught. This deal puts an additional pressure on Broadcom to increase its offer to now include NXP as well. However, things took a surprising turn when Broadcom decreased its Qualcomm bid to USD 117 billion.
Things are not looking that great for Qualcomm as the company's shares dropped 0.5 percent after its NXP bid.