2-5-18 12:22 PM EST | Email Article
By Ted Greenwald 

Broadcom Ltd. sweetened its offer for Qualcomm Inc. to more than $121 billion and threatened to walk away if the parties don't come to an agreement by early March, dialing up the pressure in its bid to take over the chip maker in what would be the largest technology deal ever.

Broadcom said Monday it would pay $82 a share in cash and stock, up from its initial offer of $105 billion, or $70 a share in cash and stock, in November.

The revised bid is its "best and final offer," Broadcom said, representing a 50% premium to Qualcomm's share price on Nov. 2, before news of an expected bid emerged. The cash portion of the offer remained at $60 a share.

In a letter to Qualcomm shareholders, Broadcom said it would stop pursuing a deal if the companies don't reach an agreement by the end of Qualcomm's March 6 shareholder meeting, or if Qualcomm shareholders don't elect a slate of directors nominated by Broadcom.

In an interview, Broadcom Chief Executive Hock 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, including tussles with international regulators, a court fight with Apple Inc., which is withholding royalty payments, and its own slow-moving deal to acquire automotive chip specialist NXP Semiconductors NV.

Wall Street sent wary signals about the deal's prospects. Despite the sweetened offer, Qualcomm shares fell 2.7% in midday trading to $64.26, below the initial $70 a share offer price. Broadcom shares jumped 2.5% to $241.41.

In a press release Monday, Qualcomm said it wouldn't comment until its board completed a review of the revised bid. In rejecting the initial offer, Qualcomm said it dramatically undervalued the company and would face significant regulatory and financial challenges.

Broadcom said Monday the deal could close about 12 months after an agreement is signed -- a time frame antitrust experts have questioned -- adding it is prepared to invite Paul Jacobs, Qualcomm's chairman, and another company director to join its board once a deal is closed.

"Even when the deal was first announced, many Broadcom shareholders -- and I'd guess a lot of Qualcomm shareholders -- had in mind a number with an '8' in front of it," Stacy Rasgon, an analyst with Bernstein Research, said of the per-share bid.

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 undermining 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 are negotiable -- if only Qualcomm board members would engage with him.

Qualcomm has said getting through regulatory review would take at least 18 months and it believed it is "highly doubtful" the transaction would be approved, pointing out potential difficulties in shedding assets.

Mr. Tan remains confident the combined company can divest itself of overlapping businesses, such as those dealing with certain cellular-handset and Wi-Fi network parts. In the interview, he said he would work with regulators on divestitures "as long as it doesn't impact the economic health of the company."

After merging Avago Ltd. and Broadcom in 2016, for example, Mr. Tan sold Broadcom's wireless internet-of-things unit to Cypress Semiconductor Corp.

Qualcomm, in an effort to persuade shareholders to resist Broadcom's initial bid, released a presentation in mid-January outlining a path to grow 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.

Qualcomm in a later letter to shareholders emphasized the difficulty of getting the proposed merger past international regulators regardless of Broadcom's ultimate offer, saying it was "highly doubtful" the transaction would be approved.

Broadcom and Qualcomm discussed a potential deal as early as 2016, according to regulatory filings. Since launching its offer, Broadcom management accused Qualcomm's directors of refusing to engage. Broadcom responded by nominating its own slate of directors for Qualcomm shareholders to vote on at the company's annual shareholder meeting, slated for early March.

--Imani Moise contributed to this article.

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

 

(END) Dow Jones Newswires

February 05, 2018 12:22 ET (17:22 GMT)

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