Broadcom officially started a hostile bid for Qualcomm in a move that one former Broadcom employee described as part of its style of financial engineering.
Qualcomm was quick to reject Broadcom’s hostile effort to replace its board of directors, but the chase is clearly on. The next big step will be a March 26 meeting wherein Qualcomm shareholders will get to vote on whether they want the takeover or not, according to a Reuters report.
Broadcom’s effort is the latest and largest in a string of deals all about growing by acquisition. It’s a bold approach admired by many, sometimes from a distance.
I’ve talked with several former Broadcom tech execs in recent weeks who left the company after it pruned R&D, including their projects. A former LSI executive was exploring opportunities in the Internet of Things at the new Broadcom when the project was cut and he decided that it was time to leave.
“What they are doing is great financial engineering,” he said. “You will see a trend of less innovation from large companies, and startups will drive innovation if they can get funded, and then companies like Broadcom will acquire them.”
Qualcomm has a different model. It pours money into R&D and gets it back through sales of high-end products and licensing its patents. It’s the latter part that has become the rub.
Apple kicked off in January a major rebellion against Qualcomm’s steep licensing fees, a battle still raging. Since then, another unnamed Qualcomm customer has also started pushing back on the fees.
Broadcom and its Wall Street advisors see the opportunity to pounce. If they capture the mobile-chip giant, they will no doubt slice and dice it up as they have LSI, the classic Broadcom, and, as they will, Brocade.
This will be a historic fight to watch over the next few weeks. It’s the biggest proposed acquisition in the history of the semiconductor industry. In some ways, it even pales this week’s somewhat bizarre bid of CVS for Aetna, claiming to reshape health care in America.
For now, Broadcom is not increasing its $70/share bid for Qualcomm. Instead, it is turning up the heat with shareholders and customers in a battle for their hearts and minds.
“We have heard from many Qualcomm stockholders who have expressed their desire for Qualcomm to engage with us,” said Broadcom chief executive Hock Tan in a statement today. “We also continue to receive positive feedback from customers … [Broadcom’s proposed board of director] nominations give Qualcomm stockholders an opportunity to voice their disappointment with Qualcomm's directors and their refusal to engage in discussions with us.”
Qualcomm was quick to respond with its own statement.
“Broadcom and Silver Lake are effectively asking stockholders to foreclose options and make a decision now on a non-binding proposed transaction, which could not be completed for well over a year, if ever, given the magnitude of regulatory issues, the absence of commitments by Broadcom to resolve those issues, Broadcom’s lack of committed financing, and the uncertainty surrounding its transition from Singapore to the United States,” it said.
Expect the war of words to intensify over the next quarter leading to the shareholder meeting, at which time, Hock Tan may sweeten his deal. Meanwhile, the slate of directors that Broadcom proposed below includes several with significant experience in semiconductors or electronics:
- Samih Elhage, former president of the mobile networks group at Nokia who also served on the board of Alcatel-Lucent.
- Raul J. Fernandez, vice chairman of Monumental Sports & Entertainment.
- Michael S. Geltzeiler, consultant for Temasek Holdings and former CFO of ADT Corp.
- Stephen J. Girsky, managing partner of VectoIQ, a former vice chair at General Motors who sat on the boards of Drive.ai and Valens Semiconductor.
- David G. Golden, managing partner at Revolution Ventures who spent 18 years at J.P. Morgan, including five years as its director of technology, media, and telecommunications investment banking.
- Veronica M. Hagen, retired CEO of Polymer Group, Inc. and held multiple positions at Alcoa.
- Julie A. Hill, owner of The Hill Company who serves on the board of Anthem Inc.
- John H. Kispert, managing partner of Black Diamond Ventures and former CEO of Spansion.
- Gregorio Reyes, former Director and Chairman of the Boards of Dialog Semiconductor plc and LSI Corp. and former Director of Seagate Technologies.
- Thomas S. Volpe, managing member of Volpe Investments LLC who has served on the board of Linear Technology.
- Harry L. You, president, CFO, and director of GTY Technology Holdings Inc. and a former EMC Corp. executive.
No doubt that these people will serve Hock Tan in coming weeks by amplifying his message to Qualcomm customers and shareholders in their rolodexes. Let the games begin.
— Rick Merritt, Silicon Valley Bureau Chief, EE Times