Top management from Qualcomm and Broadcom appear set to hold a meeting on Wednesday to discuss what could be the biggest transaction ever in the tech industry: Broadcom’s $121 billion offer to acquire Qualcomm.
The outcome of the meeting is anything but certain. Yet the simple fact that Qualcomm and Broadcom management have agreed to meet indicates at least a thawing of relations between the two companies.
Reuters reported the meeting is set for Wednesday, Feb. 14 -- Valentine's Day.
“The Board is committed to exploring all options for maximizing shareholder value, and so we would be prepared to meet with you to allow you to explain how you would attempt to bridge these gaps in both value and deal certainty and to better understand the significant issues that remain unaddressed in your proposal,” Qualcomm’s Paul Jacobs wrote in a letter to Broadcom yesterday rejecting the company’s latest takeover offer—but also opening the door to further negotiations.
In a subsequent response to Qualcomm yesterday, Broadcom’s management pounced on the offer.
“Broadcom has long sought a meeting to discuss Broadcom's acquisition of Qualcomm,” Broadcom’s Hock Tan wrote in his letter. “Following Qualcomm's announcement today that it is willing to meet with us, we offered to meet with Qualcomm on Friday, Saturday or Sunday. I was astonished to hear that Qualcomm is not willing to meet until Tuesday—only after Qualcomm's and Broadcom's respective meetings with Glass Lewis and ISS. We hope that your willingness to meet with us reflects Qualcomm's genuine intent to reach an agreement with respect to our February 5 proposal.”
Broadcom on Feb. 5 raised its bid for Qualcomm to $121 billion and called it Broadcom’s “best and final” offer. As Reuters noted, Broadcom kept the cash part of its initial offer at $60 per share but raised the stock portion from $10 to $22 per share.
In its most recent letter to Qualcomm’s management, Broadcom’s Tan hinted that the company is confident the meeting will go its way.
“After having met with most of your largest stockholders this past week, we have no doubt that this is their strong desire as well,” he wrote. “To make our meeting more productive, we are providing you with a proposed merger agreement that we are prepared to enter into. As you will see, the agreement is highly favorable to Qualcomm and its stockholders and includes an $8 billion regulatory reverse termination fee and a 6% per annum regulatory ticking fee on the cash portion of the merger consideration (net of dividends).”
Added Tan: “We want to reiterate that $82 per Qualcomm share is our best and final offer.”
Qualcomm in November rejected Broadcom’s initial $103 billion offer for the company, arguing it undervalued Qualcomm. And last month Qualcomm argued it can generate long-term annual revenue growth of 6%-8%, and that the company’s serviceable addressable market (SAM) will grow by a factor of 6x from 2015 to 2020, to a total of $150 billion.
Further, a transaction between Broadcom and Qualcomm would likely face significant regulatory concerns as would it combine two of the world’s largest providers of silicon.
Article updated Feb. 12 to include additional information from Reuters.