Qualcomm shareholders may still be unsure what exactly they’ll be asked to vote on when they gather for the company March 6 annual meeting. They key issue will be rival Broadcom’s ongoing hostile bid to buy Qualcomm.
But as the events of the past couple of days have shown, shareholders are involved in a complex business situation that includes Qualcomm effort to acquire yet another chip maker—NXP—and is liable to change from one hour to the next.
In a matter of days, Qualcomm upped its offer for NXP from $38 billion to $44 billion in hopes of finally completing a purchase that was first announced in October 2016, but has been held up in part by reluctance on the part of some large NXP investors that own as much as 28 percent of the chip maker’s stock. There also has been concern about the deal conflicting with Chinese business regulations.
The move improved Qualcomm’s chances of acquiring NXP because it included binding agreements from several NXP stockholders to support the deal, but it angered Broadcom officials, who have been pursuing Qualcomm since November 2017 despite strong resistance from Qualcomm executives and a major increase of it buyout bid from about $105 billion to $121 billion.
However, a day after Qualcomm announced the increased price for NXP, Broadcom officials reduced its offer for Qualcomm to $117 billion, saying that the new NXP price essentially meant that Qualcomm was overpaying for the company and represented a transfer of Qualcomm stock to NXP shareholders. In addition, they were angry that Qualcomm executives made the decision to raise its price for NXP without consulting with Broadcom.
“Instead Qualcomm's board acted against the best interests of its stockholders by unilaterally transferring excessive value to NXP's activist stockholders,” Broadcom officials said in a statement. “Despite this direct value transfer, Broadcom remains committed to delivering a value-maximizing offer to Qualcomm stockholders.”
Broadcom executives have said they were interested in buying Qualcomm regardless of whether the NXP deal closed. Broadcom buying Qualcomm would be the largest deal in IT industry history.
Qualcomm officials responded with a statement that “Broadcom’s reduced proposal has made an inadequate offer even worse despite the clear increase in value to Qualcomm stockholders from providing certainty around the NXP acquisition. Broadcom has refused and continues to refuse to engage with Qualcomm on price.”
They said they decided to increase the proposal for NXP because of the company’s strong market performance in recent months, revenue increases in such key NXP segments as automotive, the internet of things (IoT) and networking, as well as confidence in achieving $500 million in annual cost savings through the integration process.
The latest sparring continued what has been months of move and countermove between Qualcomm and Broadcom. Qualcomm management rejected Broadcom’s initial offer and later an increased bid, saying both undervalued the company, which is the world’s top maker of mobile processors. Qualcomm is pushing to expand its reach into such areas as the data center, PCs, the IoT, 5G network and artificial intelligence. Bringing NXP into the fold would give the vendor further capabilities in such areas as connected vehicle technology.
Broadcom has continued to pursue Qualcomm, and along with the increased offer, also revised its efforts to take control of Qualcomm’s board of directors. Rather than trying to replace Qualcomm’s entire 11-member board with handpicked nominees, Broadcom officials now will ask Qualcomm shareholders to vote next month to replace six Qualcomm directors with rival nominees.
Executives from the two companies finally met in person Feb. 14, but failed to come to agreement on any significant issues. However, in a letter sent two days later to Broadcom President and CEO Hock Tan, Qualcomm Board Chairman Paul Jacobs indicated Qualcomm officials were open to future discussions.
Jacobs also expressed Qualcomm’s concerns, including ensuring maximum value for Qualcomm investors and regulatory hurdles that a Broadcom-Qualcomm deal would face in the United States, Europe and elsewhere.
Jacobs also expressed frustration that Broadcom refused to make commitments that would ease those regulatory issues and that Broadcom officials would not discuss their intentions for Qualcomm’s licensing business, which has been the source of dispute between Qualcomm, regulators and other tech companies, including Apple.
If a deal can’t be reached with Broadcom, Jacobs’s letter said his company’s board “is highly confident in Qualcomm’s ability to deliver superior near- and long-term value to its stockholders by continuing to execute its growth strategy.”
A combined Broadcom-Qualcomm would create the world’s third-largest chip maker, only behind Samsung and Intel, and a significant player in a mobile market dominated by Apple and Samsung.
It also would continue a consolidation trend over the past several years in the semiconductor market. However, before that can happen, Qualcomm shareholders will have to choose what course to take at their meeting in a couple of weeks. However, based on the event of the past few days, what they actually get to vote on could change before that meeting convenes.