Broadcom Ltd. made an unsolicited offer to buy rival chipmaker Qualcomm Inc. for $103 billion on Monday. The company also offered to take on $25 billion of Qualcomm debt, making the transaction worth $130 billion. Broadcom’s buyout offer is considered as the largest attempted takeover in tech history.
“Our proposal provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company,” said Hock Tan, CEO of Broadcom.
Qualcomm confirmed the news saying that it received an offer from Broadcom, consisting of $60 a share in cash and $10 a share in Broadcom’s stock. The company stated that its board and advisors are reviewing the deal.
Qualcomm would need to consult its customers and shareholders for the matter. However, Broadcom CEO Hock Tan said that he would not rule a proxy fight to convince the shareholders.
“We are well advised and know what our options are, and we have not eliminated any of those options,” said Tan. “We have a very strong desire to work with Qualcomm to reach a mutually beneficial deal.”
Both the companies compete on several fronts including Wi-Fi/ Bluetooth technology and radio frequency front-end transceivers/ amplifiers.
“This deal would give Broadcom a leading position in virtually every high-value semiconductor socket in a smartphone,” said Stacy Rasgon, Bernstein Research analyst.
The tie-up between the two of the largest makers of communication could result in a massive producing body with a market capitalization of more than $200 billion. Together they would become an eminent supplier of chips used in 1.5 billion smartphones, expected to be sold around the globe this year.
“This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products. We would not make this offer if we were not confident that our common global customers would embrace the proposed combination,” said Tan.
Qualcomm had a dispute with Apple over the past year and the shareholders have watched their investments soured due to the dispute. Broadcom’s proposal offers Qualcomm shareholders $70 per share in cash and stock and a bid that would take the company’s total valuation at $100 billion.
“Now it’s a game of high-stakes poker for both sides,” said GBH Insight analyst Daniel Ives. He believes that the investors were hoping for $75 to $80 a share. The offer represents a premium of 27.6% to Qualcomm’s closing price of $54.84 on Thursday.
Analysts believe that Qualcomm would most likely decline the offer for being too low. Qualcomm’s board of directors “would likely reject this initial roughly $100 billion potential offer as too low and prefer to remain independent,” said Mike Walkley, an analyst with Canaccord Genuity.
The San-Diego based company’s share topped $80 in 2014 and traded above $70 in last December. The shares rose 1.1% to $62.52, suggesting skepticism a deal would happen.
Broadcom, a small chipmaker company that turned into a $100 billion giant by Hock Tan had its shares rose to 1.4% to $277.52 on Nasdaq, after reaching a record of $281.80.
Qualcomm made a $38 billion bid for automotive chipmaker NXP Semiconductors NV Last year and is currently in the process of closing that bid. NXP is one of the largest chipmakers for vehicles.
Broadcom said that its offer stands whether the pending NXP acquisition is completed or not.
Qualcomm had approval for the transaction from five global regulators and is waiting on reviews in Europe, South Korea, Japan and China. Activist NXP shareholders are not satisfied by the offered bid and are lobbying NXP to seek a higher price from Qualcomm.
If Broadcom acquires Qualcomm which acquires NXP, together the three companies would get control over modems, Wi-Fi, GPS and near-field communications chips. They would achieve a dominant position with immense power, a position that could be very concerning for customers like Apple and Samsung, as the combined company would likely raise the prices.
Herbert Hovenkamp, an antitrust teacher at the University of Pennsylvania Law School, said that the U.S. regulators would ensure that the deal does not lead to rise in chip prices.
Tan says that if he is successful in acquiring Qualcomm – which in turn has acquired NXP – the combined company’s net debt could be ‘in the range of $90 billion.’
Analysts from Standard & Poor’s noted that Broadcom’s proposed acquisition “will face significant regulatory scrutiny given its scale and potential customer concentrations in wireless and networking end markets. This also adds more uncertainty to a challenging business environment that Qualcomm currently faces.”
The buyout offer comes as Qualcomm fights a legal battle with Apple over antitrust violations and faces heavy fines from anti-monopoly regulators in U.S., Taiwan and South Korea. These complications, terribly affected Qualcomm’s full fiscal year results released last week that were 57% down as compared to the prior year. Moreover, its stock price had declined 18% over the last 12 months.
The acquisition of Qualcomm by Broadcom could somehow ease the war between Apple and Qualcomm, as Broadcom has a pretty cordial relationship with Apple. Experts believe that Apple being Qualcomm’s biggest customer would be a part of the board, reviewing Broadcom’s deal.
Qualcomm was founded in1985 and ranks as San Diego’s largest employers with 13,000 local workers and 33,800 workers worldwide. The company powers the cellular connection for the most number of smartphones around the world.
Broadcom was created last year after the Irvine-based Broadcom Corp. was bought by Tan Avago Technologies Ltd. for $37 billion. The name ‘Broadcom’ was adopted by the combined company.
Broadcom plans to move its headquarters from Singapore to the United States of America. Last month, Tan held a news conference with President Donald Trump at the White House to announce the moving of Broadcom’s corporate domicile to the USA.