Former Qualcomm Chairman Reportedly Seeks Financing to Buy Company

NEWS ANALYSIS: Former Qualcomm board chairman Paul Jacobs reportedly is looking for financing to buy the chip maker, while the company struggles to close the NXP deal.

Qualcomm Troubles

The federal government’s decision to block Broadcom’s $117 billion bid to buy Qualcomm didn’t buy the chip maker much time to find its footing after what had been a tumultuous three months.

Just days after President Trump signed a presidential order that put a spike into Broadcom’s hostile takeover effort because of national security concerns, reports are surfacing that Paul Jacobs, the former executive chairman of Qualcomm’s board of directors whose father was a co-founder of the company, has notified executives that he is trying to put together a proposal to buy the company.

There are also indications that Qualcomm officials are having difficulties closing their $44 billion acquisition of rival chip maker NXP, a deal which has been in the works since October 2016.

All of this surrounds a company that has had to content with multiple challenges over the past several years, from battles with regulatory agencies around the world over its controversial licensing business to a high-profile legal dispute with Apple that was mostly pushed out of the news while the Broadcom buyout drama unfolded, but still represents a significant challenge for the chip maker.

The order by Trump to block Broadcom’s proposed acquisition of Qualcomm brought an end to the  contentious rhetoric between the two companies that saw Qualcomm executives consistently pushing back at Broadcom’s hostile bid.

Qualcomm management asserted that the proposal undervalued Qualcomm and that the company’s position in the industry was strong, not only in the mobile device space but in such growth areas as the data center, the internet of things (IoT) and 5G networking. It was Qualcomm’s position as a leader 5G technology that caused the most concern at the federal level.

Congressional lawmakers had asked the Treasury Department to have the Committee on Foreign Investment in the United States (CFIUS)—which reviews that national security implications of deals in which a foreign company bids to buy a U.S. firm to consider national security implications—to review the matter. Lawmakers were concerned about Qualcomm losing its 5G wireless leadership position and to try to keep U.S. jobs from heading overseas.

The worry was that a deal inhibiting Qualcomm’s R&D efforts would give China an advantage in 5G development. Broadcom is based in Singapore, though it plans to relocate its headquarters to the United States within the next few weeks.

Qualcomm officials also had asked that CFIUS get involved, an unusual move since the panel normally evaluates deals in which both sides have already agreed to an acquisition. CFIUS had questioned the deal, and Trump in his March 12 order wrote that there was “credible evidence” that the acquisition “threatens to impair the national security of the United States.”

Broadcom officials soon issued a statement officially withdrawing its bid for Qualcomm.

In the midst of the Broadcom takeover maneuvers, Qualcomm announced that Jacobs would no longer be executive board chairman, though he would retain a seat on the board. Now Jacobs has reportedly has told company directors of his intent to buy Qualcomm, according to The Financial Times and Reuters.

Citing anonymous sources, Reuters reported that the ex-chairman has met with several investment firms, including Softbank’s Vision Fund, but has yet to get the financing. Qualcomm executives don’t consider Jacob’s bid a serious one.

There are several possible conflicts of interest, including Softbank’s ownership of Arm since Qualcomm’s chips are based on Arm’s architecture and Qualcomm’s prior investments in the Vision Fund.

In the midst of all these developments, Qualcomm also is trying to get NXP shareholders to accept its own buyout bid.  Qualcomm initially offered $38 billion for NXP before increasing its bid last month to $44 billion. Qualcomm has extended the acceptance deadline for its offer several times in recent months. Most recently, Qualcomm officials extended the deadline another week, from March 16 to March 23.

In a statement announcing the latest deadline extension, Qualcomm officials said that by the end of the day March 15, more than 56.6 million NXP shares had been tendered in agreement with the deal. That is about 16.5 percent of NXP shares, though a week earlier Qualcomm executives said that 19 percent of shares had been tendered, indicating a dwindling interest among shareholders.

The Broadcom-Qualcomm and Qualcomm-NXP situations highlight a larger consolidation trend that had been ongoing in the semiconductor business for several years as chip makers look to grow their capabilities and reduce the competition in the face of a range of emerging technologies, including the cloud, data analytics, the IoT, 5G, machine learning, artificial intelligence, virtual and augmented reality, and autonomous vehicles.

During Broadcom’s pursuit of Qualcomm—a deal that would have created the world’s third-largest chip maker, behind Samsung and Intel—Intel officials reportedly were considering making a bid to buy Broadcom in a move that would have squelched the Broadcom-Qualcomm deal and given Intel more capabilities in the mobile chip space.

However, Intel CEO Brian Krzanich said during an interview on CNBC that the giant chip maker has no plans to buy Broadcom, focusing instead on prior purchases of Altera (programmable processors) and Mobileye (software for autonomous vehicles).