A week after Broadcom made a bold $103 billion bid for Qualcomm, the mobile chip giant rejected it, and Broadcom quickly announced it is standing pat. Now the battle begins in earnest.
It’s not surprising the historically huge bid should be rebuffed. As Hock Tan noted in his offer letter, the two had privately discussed merger possibilities and clearly Qualcomm had not agreed, triggering Tan’s hostile bid.
At the very least, Qualcomm owes it to employees and shareholders to push for a higher price and better terms. That is indeed the big message it sent with its short public statement, offered without comment, that the $70/share offer “dramatically undervalues the company.”
Wall Street liked the move, sending Qualcomm shares up and Broadcom’s down each about a point, Reuters reported.
So far, Hock Tan is standing firm. Broadcom was quick to release a statement saying its $70/share offer represents a 28-33 percent premium on Qualcomm’s recent stock prices. That’s in the neighborhood of a typical deal, but it’s not the best house on a block as rich as this one.
Tan is hoping he can stir up some investor unrest, but he may have to up the ante to do it. We may see a couple rounds of bidding given Qualcomm’s firm stance, claiming it’s board decision was unanimous after “a comprehensive review” of the offer with legal and financial advisors.
I doubt this is just a matter of the amount of money. I suspect Paul Jacobs doesn’t want to see the company he helped grow and his father co-founded as part of what Tan calls “the Broadcom platform.” The clash of cultures is as huge as would be the exits of executives and engineers under the cost and management constraints Tan would no doubt impose.
Tan will have to find other levers besides cash and stock if he wants to acquire Qualcomm. I think anything that derails Qualcomm’s effort to acquire NXP would be a sufficient pain point to make Qualcomm relent.
Qualcomm needs to strengthen its position given the slowdown ahead in smartphones and the historic consolidation of the semiconductor industry in the last three years. It cannot survive Wall Street and activist shareholder pressures as it is.
I disagree with the statement from chief executive Steve Mollenkopf that “No company is better positioned in mobile, IoT, automotive, edge computing and networking within the semiconductor industry.”
With NXP that might almost be true. But without it, Qualcomm has a relatively small foothold in automotive, and it’s not much better positioned than any of half a dozen ARM licensees in IoT and edge computing.
I think this deal is in the hands of four regulators who are pondering Qualcomm’s response to questions regarding the NXP deal — probably about licensing practices around its cellular patents.
I think Tan knows the best chance of Qualcomm getting approval for any major merger is through divesting its patent portfolio. Its licensing practices have sparked major legal battles with Apple and regulators around the globe. Tan would not hesitate to sell this crown jewel, but I suspect Jacobs never would.
So, there will be a back and forth for a while about money. But in the end the deal is all about patents, licensing practices and regulators. If the EU, Chnia and other regulators approve Qualcomm’s bid for NXP it may escape Broadcom. If they do not, Hock Tan may get both.
— Rick Merritt, Silicon Valley Bureau Chief, EE Times