Broadcom Continues Pursuit of Qualcomm Despite Rejection

Qualcomm claims Broadcom’s unsolicited $105 billion bid undervalues the company and sets up regulatory challenges.

Broadcom-Qualcomm Deal

To the surprise of few, Qualcomm’s board of directors on Nov. 13 rejected Broadcom’s week-old $105 billion unsolicited bid for the company, saying the offer undervalues Qualcomm and doesn’t take into account the chip maker's growing influence in the IT industry.

Despite the rejection, Broadcom officials said they intend to continue pursuing the acquisition and urged Qualcomm executives to come to the negotiating table.

"This transaction will create a strong, global company with an impressive portfolio of industry-leading technologies and products, and we have received positive feedback from key customers about this combination,” Broadcom President and CEO Hock Tan said in a brief statement.

“We continue to believe our proposal represents the most attractive, value-enhancing alternative available to Qualcomm stockholders and we are encouraged by their reaction. Many have expressed to us their desire that Qualcomm meet with us to discuss our proposal.”

However, Qualcomm officials argued that the company’s customers and stockholders would be better served by an independent Qualcomm. In addition, Presiding Director Tom Horton said the deal would face significant antitrust regulatory hurdles.

“No company is better positioned in mobile, IoT [internet of things], automotive, edge computing and networking within the semiconductor industry,” CEO Steve Mollenkopf said in a statement. “We are confident in our ability to create significant additional value for our stockholders as we continue our growth in these attractive segments and lead the transition to 5G.”

In the letter last week to Qualcomm’s board announcing the offer, Tan said he first approached Mollenkopf with the idea of an acquisition more than a year ago. A combination of the two companies would create the world’s third largest semiconductor company in terms of annual revenues, behind only Intel and Samsung.

Qualcomm is the world’s largest mobile chip maker and is rapidly expanding into other sectors as it looks to diversify its product portfolio. Broadcom, whose chips can be found in a range of systems such as network switches, enterprise storage appliances and set-top boxes, is looking to add to its portfolio.

Qualcomm in recent years has extended its focus in to such areas as IoT, data center servers (with the launch last week of its Arm-based Centriq 2400 chip) and, with its proposed $47 billion offer for rival chip maker NXP, autonomous vehicles.

Broadcom officials said the offer of $70 per share for Qualcomm will stand regardless of whether the NXP deal goes through. Qualcomm’s bid for NXP is being reviewed by European and Chinese regulators.

Broadcom’s push to buy Qualcomm is part of a larger years-long trend of consolidation in the chip-making industry that includes Avago’s $37 billion deal to buy Broadcom—and adopt the Broadcom name—which closed last year. Other notable deals included Intel buying programmable chip maker Altera for $7.68 billion in 2015, and Softbank’s $32 billion of Arm last year.

In addition to Qualcomm’s NXP offer, Broadcom also is trying to acquire Brocade for $5.9 billion. The same day that Broadcom launched its bid for Qualcomm, Marvell Technology announced its intention to buy Cavium for $9 billion in a deal that would merge two makers of Arm-based data center chips.

Broadcom’s next move in its quest for Qualcomm is uncertain, with options ranging from raising its bid and conducting a hostile takeover by waging a proxy fight to gain control of the Qualcomm board of directors.

The offer comes at a time of up and downs for Qualcomm, which is growing it presence in new markets while also waging a high-profile and costly legal battle over patents and business models with Apple. Both Broadcom and Qualcomm both supply chips to Apple.