Broadcom made an unsolicited $103 billion offer to take over rival Qualcomm, confirming rumors that surfaced late last week. But whether Qualcomm shareholders will bite is far from certain.
Broadcom, which is based in Singapore but has announced plans to return to the United States, is offering to pay $70 per share for Qualcomm in a deal that values the San Diego-based chipmaker at $130 billion including $25 billion in net debt.
"Broadcom's proposal is compelling for stockholders and stakeholders in both companies. Our proposal provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company," said Broadcom CEO Hock Tan in a press release. "This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products. 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."
Qualcomm in July posted $5.4 billion in revenue in the previous quarter, down 11% year over year, and income fell a whopping 40% due primarily to a patent battle with Apple that began in January and continues to rage. Reports surfaced last week that Apple was considering eschewing Qualcomm chips entirely in its iPhones and iPads beginning next year in what would a major blow for the San Diego-based chipmaker.
A tie-up between Broadcom and Qualcomm could help alleviate the damage from that battle, however. Broadcom also is a major supplier of parts for Apple’s iPhone, and new management might be better positioned to resolve the dispute, Bloomberg noted last week.
But some Qualcomm investors are likely to balk at the deal, said Stuart Carlaw, chief research officer at ABI Research.
“The Qualcomm shareholders are likely to be split with many viewing this opportunity as a solution to the worsening relations with Apple, whom Broadcom has a good relationship with,” Carlaw said in a prepared statement. “The potential merger raises significant questions surrounding the difficult takeover of NXP by Qualcomm and much is still to be discerned regarding the value of the Qualcomm patent holdings and its associated lucrative high-margin revenue stream.”