Since November of 2017 we’ve been watching a fight play out between Broadcom and Qualcomm. It began when Broadcom offered to buy out Qualcomm and Qualcomm wasn’t interested. Broadcom then launched a hostile takeover by nominating 11 individuals to Qualcomm’s board of directors. That proposal won’t be voted on until March 6. In the interim, there’ve been several rounds of negotiation, though a new move by Qualcomm to offer more money for NXP Semiconductor may have sunk it for good.
Broadcom initially attempted to acquire Qualcomm in a deal worth approximately $130B. After that offer was rejected, Broadcom made a “best and final offer” earlier this month. Under the terms of that agreement, Broadcom would pay $146B for Qualcomm in a mixture of cash and stock. Broadcom also announced it would take over Qualcomm’s debt. But one of the conditions of this offer was that Qualcomm would only offer $110 per share for its acquisition of NXP.
Qualcomm’s initial deal with NXP valued the company at $47 billion ($110 per share) and required agreement from 80 percent of NXP shareholders. By increasing its offer to $54.5B ($127.50 per share), Qualcomm has effectively told Broadcom to shove off. A merger between Qualcomm and NXP would combine one of the largest manufacturers of automotive chips with one of the largest communication providers. Another key provision of the offer is that Qualcomm only has to convince 70 percent of shareholders to agree to the deal, down from an initial 80 percent. Right now, Qualcomm has the support of roughly 28 percent of NXP shareholders, but goosing its offer up to $127.50 represents a substantial increase in value.
A merger between Broadcom and Qualcomm would represent horizontal integration, given that certain products overlap between the two companies. It would also vastly complicate Qualcomm’s purchase of NXP, which would face fresh regulatory scrutiny. At minimum, it could delay the purchase of NXP significantly, if regulators decided to allow all three companies to merge at all.
As for which outcome is most likely, that’s difficult to predict. If Qualcomm’s shareholders vote to seat Broadcom’s board of directors, a merger is a foregone conclusion (subject to regulatory challenge). If Qualcomm’s shareholders decide NXP is the proper acquisition, then the only government that still needs to give regulatory permission is China. If the Broadcom deal goes ahead, that entire process will likely start from scratch. Having already spent 18 months chasing this deal, Qualcomm is obviously not interested in pushing off its acquisition once more.
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