Qualcomm Rejects Broadcom's Takeover Bid -- Update

11/13/17 11:16 AM EST
By Ted Greenwald 

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 massive 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.

"It is the Board's unanimous belief that Broadcom's proposal significantly undervalues Qualcomm relative to the company's leadership position in mobile technology and our future growth prospects," Paul Jacobs, Qualcomm's executive chairman, said in prepared remarks.

Broadcom didn't respond to a request for comment.

The rejection could lead to a higher bid from Broadcom. It also could set the stage for a possibly drawn-out struggle for control of the Qualcomm board. Broadcom has said it would prefer amicable negotiations, but a person familiar with Chief Executive Hock Tan's thinking believes he would be willing try to elect directors to Qualcomm's board who will favor the deal. The nomination deadline is Dec. 8. The annual meeting at which the director vote would take place likely would be around March.

Qualcomm's decision was expected, analysts said, as unsolicited bids often are rebuffed as a negotiating tactic. It signals directors believe 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 morning trading in New York, Qualcomm's shares were up 1.2% to $65.38. Shares of Broadcom were down less than a percent at $263.92

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 conflicts with Apple Inc. 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.

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 automotive chip leader NXP Semiconductors NV. 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 the 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


(END) Dow Jones Newswires

November 13, 2017 11:16 ET (16:16 GMT)

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