Broadcom Makes Unsolicited $105 Billion Bid for Qualcomm

The deal would create the world's third-largest chip maker, behind only Intel and Samsung, but Qualcomm make balk.

Acquisition

Broadcom is making an unsolicited bid to buy mobile chip maker Qualcomm for $130 billion, which would create a chip-making behemoth with the capabilities to challenge industry leaders Intel and Samsung and continue the multiyear consolidation trend in the semiconductor space.

The deal would combine Broadcom’s broad chip-making business, which supplies silicon for everything from network switches and enterprise storage appliances to set-top boxes, with Qualcomm’s leading mobile chip capabilities. Should Qualcomm’s already proposed $47 billion offer for chip maker NXP finally get past regulatory reviews in places like Europe and China, it also would bring autonomous cars and microcontrollers (MCUs) into Broadcom’s fold.

Broadcom officials said Nov. 6 that they are willing to make the deal for Qualcomm regardless of whether or not the NXP deal goes through.

Although reports about Broadcom’s interest in Qualcomm have surfaced over the past couple of days, in a Nov. 6 letter to Qualcomm’s board of directors, Broadcom President and CEO Hock Tan said he first approached Qualcomm CEO Steve Mollenkopf about the idea more than a year ago.

Tan wrote that combining the two companies “will create a strong, global company with an impressive portfolio of industry-leading technologies and products. Given the highly complementary nature of our businesses, we are confident that our global customers will embrace the proposed combination as we work strategically with them to deliver more advanced value-added semiconductor solutions.”

Broadcom’s board of directors has already approved the offer. The company is offering $70 per share, a 28 percent premium over Qualcomm’s stock price at the Nov. 2 closing, which Broadcom officials said put the price at $130 billion should Qualcomm eventually close the NXP deal. The deal would come in around $105 billion without NXP.

Qualcomm officials in a brief statement confirmed that they had received Broadcom’s proposal and that the board of directors and legal and financial advisers will review it and make a recommendation. They said they would not comment further until that recommendation is ready. However, according to a Bloomberg report, Qualcomm officials are preparing to reject Broadcom’s offer, saying it would undervalue the company.

The bid comes as Qualcomm gets ready to launch its Centriq 2400 ARM-based processor aimed at servers for cloud environments.

Broadcom’s bid for Qualcomm—which dwarfs Dell’s $63 billion acquisition of EMC a year ago, currently the largest deal in the tech industry—is the latest move in a highly dynamic chip-making space. (Silver Lake Partners, the capital venture firm that helped Michael Dell take his namesake company private and then buy EMC, is one of the financial partners in Broadcom’s bid for Qualcomm.)

The semiconductor industry has seen its share of consolidation, such as Intel’s $7.68 billion acquisition in 2015 of programmable chip maker Altera and Avago’s $37 billion deal for Broadcom, which closed last year. Avago than assumed the Broadcom name. Broadcom also is in the process of buying Brocade for $5.9 billion, but is running into the Committee on Foreign Investment in the United States, a U.S. agency tasked with reviewing the security concerns of foreign investments in U.S. companies.

Officials with Broadcom, which is headquartered in Singapore, said last week that they plan to move the company’s base to the United States.

Recent days have turned up a range of other movements in the chip market. According to reports, Marvell Technology is looking at combining with fellow chip maker Cavium in a $9 billion deal that would merge two companies with designs for bringing ARM-based chips into data center systems, including servers. At the same time, Intel and Advanced Micro Devices officials have announced that they are combining Intel’s CPU with AMD’s GPU to create a chip for high-performance laptops and two-in-one PCs that would help both vendors push back at the challenge created by GPU maker Nvidia.

In addition, Qualcomm has been in a high-profile multimillion-dollar legal dispute with Apple over patents regarding Qualcomm technologies that are used in Apple’s iPhones, an indication of the growing tension and changing dynamics within the chip industry. Qualcomm officials last week said that net income for the fourth fiscal quarter fell 89 percent and that financial results in both the third and fourth quarters were impacted by “actions taken by Apple and its contract manufacturers” as well as a dispute with another company that licenses Qualcomm patents.

The dispute with Apple promises to continue roiling Qualcomm. The Wall Street Journal has reported that Apple currently is designing iPhones and iPads for next year that would omit Qualcomm products and only use technologies from Intel and possibly MediaTek.

Broadcom officials said buying Qualcomm would create the world’s third-largest semiconductor maker, behind Intel and Samsung Electronics. Bringing in Qualcomm and NXP would make a larger Broadcom even that much more of a challenge to the two leaders.

"This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products,” Broadcom’s Tan said in a statement. “We would not make this offer if we were not confident that our common global customers would embrace the proposed combination. With greater scale and broader product diversification, the combined company will be positioned to deliver more advanced semiconductor solutions for our global customers and drive enhanced stockholder value."