Broadcom Offers $130B for Hostile Takeover of Qualcomm

Dan Jones
11/6/2017
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Broadcom revealed Monday that it's offering $105 billion in cash and stock for Qualcomm -- the largest acquisition offer ever seen in the tech world. Qualcomm has so far called the bid "unsolicited" but didn't immediately dismiss the offer.

Under Broadcom Corp. (Nasdaq: BRCM)'s proposal, the $70 per share to be received by Qualcomm stockholders would consist of $60 in cash and $10 in Broadcom shares. The company says that its "proposal represents a 28% premium over the closing price of Qualcomm common stock on November 2, 2017, the last unaffected trading day prior to media speculation regarding a potential transaction."

The November 2 part is important, because Qualcomm stock shot up on November 3 as word about the pending deal got out. (See Could Broadcom Possibly Absorb Qualcomm?.)

Overall, the offer is valued at $130 billion, including $25 billion of net debt. Broadcom has also said it will relocate its headquarters back from Singapore to the US. (See Broadcom Heads Home, Clears Way for Brocade Buyout.)

"The Qualcomm Board of Directors, in consultation with its financial and legal advisors, will assess the proposal in order to pursue the course of action that is in the best interests of Qualcomm shareholders." Qualcomm said in a statement. "Qualcomm will have no further comment until its Board of Directors has completed its review."

Broadcom has been listed as the number one player in "wireless connectivity ICs" by ABI Research , largely thanks to its WiFi and Bluetooth chips. Qualcomm has a 52% share of the smartphone application processor, according to Strategy Analytics Inc. . It makes 3G, 4G, and prototype 5G modems. Rivals include Intel Corp. (Nasdaq: INTC) and MediaTek Inc. (Taiwan: 2454)

Meanwhile, Qualcomm is still trying to buy NXP Semiconductors for $39 billion. "Our proposal stands whether your pending acquisition of NXP is consummated on the currently disclosed terms of $110 per share or that transaction is terminated," Broadcom CEO Hock Tan writes in an open letter to Qualcomm's board. (See Qualcomm Makes $39B Bet on NXP.)

One obvious area of overlap between the two companies, which may interest regulators if the deal reaches that stage, is WiFi chips. Qualcomm bought Atheros Communications Inc. (Nasdaq: ATHR) for its WiFi chips in 2011. (See Rumor: Qualcomm to Buy Atheros.)

— Dan Jones, Mobile Editor, Light Reading

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kq4ym
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kq4ym,
User Rank: Light Sabre
11/21/2017 | 10:44:07 AM
Re: What does Broadcom see in Qualcomm?
Interesting point and it will bear watching to see what happens as Qualcomm's licensing income dwindles over the years and how their chip revenues may change drastically as others capture the market.
TV Monitor
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TV Monitor,
User Rank: Light Sabre
11/7/2017 | 5:10:44 PM
Korea's 28 Ghz 5G spectrum auction next year
Korean government just announced that they were going ahead with the 28 Ghz spectrum auction for 5G services next year.

With the Samsung 5G technology now operational, I think they really are trying to commercialize the 28 Ghz mmwave 5G technology by 2019 and beat Japan's 4.5 Ghz 5G launch by a year. 
bosco_pcs
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bosco_pcs,
User Rank: Light Sabre
11/7/2017 | 4:50:08 PM
Re: What does Broadcom see in Qualcomm?
Broadcom is essentially a rollup shop. If it stops, its growth may stop. In a rising rate environment, it may be in trouble when its business cycle tops.

It is taking advantage of Qualcomm's myriad of problems. Mind you, stockwise, QCOM hits $70 a share all by itself before it foolishly tried to tangle with Apple.

Both of the companies are actually trying to broaden their appeals. That is why Broadcom trying to buy BRCD and Qualcomm NXPI.

Personally, I do not think Broadcom can copy Qualcomm's patent strategy when this strategy is what got QCOM into trouble in China, S Korea etc.

Perhaps Broadcom thinks size matters.

But IMHO, Broadcom is the one that shows weakness. The fact that it tries to sell off pieces of BRCD (to Extreme and Arris) even before the merger deal is done is either a very proactive move or too leveraged for comfort. I believe the latter.

In a different column, Dan wonders aloud if Intel should be the white knight. Why not wait until both Broadcom and Qualcomm collapse and pick on the wreckage instead?
TV Monitor
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TV Monitor,
User Rank: Light Sabre
11/6/2017 | 11:50:54 PM
Re: What does Broadcom see in Qualcomm?
"their 4G portfolio still has years of royalties to deliver."

Yes, but it will decrease each passing year. Hence Qualcomm deserves a less valuation, not more.
DanJones
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DanJones,
User Rank: Blogger
11/6/2017 | 4:33:08 PM
Re: What does Broadcom see in Qualcomm?
Even if Qualcomm does nothing in 5G which seems unlikely, their 4G portfolio still has years of royalties to deliver.
DanJones
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DanJones,
User Rank: Blogger
11/6/2017 | 4:30:21 PM
I wonder what this means for the Apple suits
I don't suppose Bcomm is going to want to reduce royalty rates much even if this bid succeeds.
TV Monitor
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TV Monitor,
User Rank: Light Sabre
11/6/2017 | 4:28:15 PM
What does Broadcom see in Qualcomm?
I don't understand what Broadcom sees in Qualcomm.

Qualcomm's patent position is much weaker in 5G era where Samsung is the new 5G king. Since 90% of Qualcomm's profits come from patent licensing revenues, Qualcomm's revenues are bound to decline over the next decade as carriers sunset CDMA networks and WCDMA/LTE patents expire.

Additionally, Samsung is now even with Qualcomm in LTE modem race and beats Qualcomm in 5G modems. Huawei will control the majority of Chinese 5G modem markets too. Apple is preparing to drop all Qualcomm modems in iPhones from next year.

Somebody at Broadcom must have failed to do a due diligence analysis of Qualcomm's position in the market.
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