2-5-18 6:53 PM EST | Email Article
By Ted Greenwald 

Broadcom Ltd. made a sweetened offer for Qualcomm Inc. that valued the semiconductor maker at $121 billion but did little to convince investors that the potentially biggest technology deal on record would actually happen.

Broadcom, which also is a chip maker, on Monday raised its offer to $82 a share in cash and stock, up from its initial offer of $70 a share, or $105 billion, in November. The portion of the offer in cash was unchanged at $60 a share.

Qualcomm's shares were down about 3% in afternoon trading at $64.06, a 22% discount to the revised bid, reflecting Wall Street's continued wariness about prospects for the deal. Shares then tumbled with the broader market, at one point sinking 7.8% before ending with a 6.6% loss at $61.73.

The Qualcomm stock move Monday is "a little puzzling," said Chris Caso, an analyst with Raymond James, given that the revised offer was in line with what many investors expected. Several analysts suggested Broadcom Chief Executive Hock Tan's declaration that the revised bid is his "best and final offer" rattled investors hoping for stronger language about getting a deal done. Broadcom shares, flat most of the day, turned south too, finishing down 3.1% at $228.10.

Mr. Tan, in a letter to Qualcomm shareholders Monday, also threatened to walk away if the companies can't agree on a deal by Qualcomm's March 6 shareholder meeting or if Qualcomm shareholders don't elect Broadcom's proposed slate of directors.

Qualcomm has continued to hold Mr. Tan at arm's length throughout the process. "There's a view that maybe the chances are higher that Broadcom could walk," Bernstein analyst Stacy Rasgon said.

Another cloud hanging over Qualcomm stock Monday was a research note from Nomura Instinet analyst Romit Shah in which he suggested Apple Inc. might reduce its reliance on Broadcom chips and cut out Qualcomm entirely in its next cycle of iPhones. All three companies declined to comment on that report.

Mr. Tan has suggested he can solve an ongoing dispute over royalties between Qualcomm and Apple. Investors have to wrestle with the possibility, if a deal is completed, that his solution could eliminate much of Qualcomm's highly profitable patent-licensing revenue.

The revised bid represents a 50% premium to Qualcomm's share price Nov. 2, before news of an expected bid first emerged. Since the initial bid, Qualcomm's stock has never closed a day at $70 a share or more.

In an interview, Mr. Tan talked down a recent presentation from Qualcomm executives on how the company would grow without a Broadcom deal.

"This offer provides more value than any stand-alone value Qualcomm has tried or is planning to try to create," he said. "What they're trying to do doesn't hold a candle to it."

The new offer comes as Qualcomm is grappling with several significant challenges that depressed its stock price through 2017, including various tussles with international regulators, its court fight with Apple, which is withholding royalty payments, and Qualcomm's own slow-motion deal to acquire NXP Semiconductors NV.

The proposed NXP acquisition has weighed on prospects for a Broadcom-Qualcomm deal, analysts said. Mr. Tan's offers have been contingent on the completion of the NXP transaction at the original $110-a-share offer price.

Holding to that price seems unlikely, though. NXP stock has traded well above the $110 offer price, and few NXP shareholders have tendered their shares. The activist investor Elliott Management Corp. has said NXP is worth $135 a share, making it likely Qualcomm will need to raise its offer.

In a news release Monday, Qualcomm said it wouldn't comment on Broadcom's revised bid until its board completed a review of it. In a prior letter to its shareholders, Qualcomm said it was "highly doubtful" a Broadcom transaction would be approved by international regulators.

Combined, the two companies would form the No. 3 chip maker by revenue, behind Intel Corp. and Samsung Electronics Co. -- a position that could give antitrust enforcers pause. A merger would face steep challenges from international regulators, antitrust watchers say, particularly over the companies' dominant positions in parts critical to smartphones.

A combined company could dictate the capabilities of wireless devices, potentially hurting consumers, device makers, software writers and service providers, some say.

To compensate Qualcomm shareholders for regulatory risk, Broadcom's updated offer includes a fee to be paid to Qualcomm if the transaction isn't completed within 12 months, as well as a multibillion-dollar breakup fee in the event the transaction is terminated. Mr. Tan said the size of the fees is negotiable -- if only Qualcomm board members would engage with him.

"Given the magnitude of the deal, something in the range of $10 billion seems like it could be in the ballpark," Mr. Rasgon said, based on the typical size of merger breakup fees relative to purchase price.

Qualcomm, in an effort to persuade shareholders to resist Broadcom's initial bid, released a presentation last month outlining a path to increasing adjusted per-share earnings, from $4.28 in fiscal 2017 to between $6.75 and $7.50 in fiscal 2019. It promised that in the event it doesn't complete its proposed NXP acquisition, it would create an equivalent boost to earnings by buying back shares. Qualcomm also promised to shed $1 billion in costs.

Write to Ted Greenwald at Ted.Greenwald@wsj.com

 

(END) Dow Jones Newswires

February 05, 2018 18:53 ET (23:53 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
Add a Comment

Try Premium Membership today. Your first 14 days are free of charge. Start my Premium Membership Trial.
Sponsored Links
Buy a Link Now
Sponsor Center
Content Partners