The compelling offer will notch up pressure on Qualcomm to take a tough decision. Adding to that pressure is Qualcomm’s return of investment to shareholders of -7% against a semiconductor index return of 106%.
In what could be the biggest acquisition in the tech sector, Broadcom Ltd has put forward a $121 billion “best and final offer” for the purchase of Qualcomm Inc. The move is likely to increase pressure on Qualcomm to engage in merger talks.
Qualcomm has stated its board of directors would review the offer and decline any further comment until then.
The development marks a central trend of consolidation in the wireless technology equipment sector with smartphone makers, including Samsung, and Apple using their market clout to negotiate and bring down chip prices.
Broadcom’s new offer of $82 per share includes a $60 in cash incentive and a $22 in Broadcom stock price. In November, in its first offer, it provided $70 per share, which comprised of $60 in cash and $10 in stock.
The increased stock component would subject the deal to a Broadcom shareholder vote.
“Qualcomm and its board now have a tough decision, as this is a compelling offer in our opinion,” said Daniel Ives, an analyst at GBH Insights.
“Qualcomm got where it did in the last 30 years with a business model hinging on intellectual property licensing that is, at this day and age, not sustainable. You can sell products, as Broadcom does, very successfully, and generate a very good return for your shareholders,” said Hock Tan, Broadcom’s CEO in an interview.
Significantly, in a presentation available on its website, Broadcom came down heavily on Qualcomm’s management team, led by the company’s CEO Steve Mollenkopf, for providing shareholders a return of -7% since 2005 against a wider semiconductor index return of 106%.
As per a filing with the U.S. Securities and Exchange Commission, Broadcom’s antitrust counsel, Daniel Wall of Latham & Watkins LLP, stated Broadcom was willing to sell two Qualcomm businesses, its RF Front End chips for mobile phones and its Wi-Fi networking processors, to resolve any antitrust problems.
“There is no antitrust issue. The overlap is very limited in this transaction. People talk about us making even more commitments on the regulatory front, like adding hell-or-high water provisions, which are not a very well defined legal standard, and we chose not to include it because it would not add much incremental certainty,” said Tan.