Broadcom and Qualcomm Negotiate Potentially the Largest Tech Takeover

Author: Jaclyn Pearl

  • Broadcom (NASDAQ:AVGO) bid $121 billion for Qualcomm (NASDAQ:QCOM) contingent on Qualcomm’s purchase of NXP Semiconductors (NASDAQ:NXPI) for $110 per share
  • Qualcomm raised their bid for NXP to $127.50 per share
  • Broadcom lowered their bid for Qualcomm to $117 billion

When the negotiating began in November of 2017, Broadcom offered to buy Qualcomm for $100 billion which was unanimously rejected by Qualcomm’s Board of Directors on the basis that the offer undervalued the company and came with regulatory uncertainty. In early February, Broadcom revised its offer to $60 per share in cash and $22 per share in Broadcom stock, but contingent on Qualcomm’s purchase of NXP Semiconductors at the price of $110 per share. However, Qualcomm still believed the offer was too low.

Qualcomm has been making efforts to buy NXP for over a year – $38 billion was the initial offer. Recently, Qualcomm raised their offer for NXP to $44 billion or $127.50 per share. Broadcom responded by lowering their offer for Qualcomm to $117 billion (from $82 to $79 per share), claiming that “Qualcomm’s board acted against the best interests of its stockholders by unilaterally transferring excessive value to NXP’s activist stockholders.”

After the latest offers, NXP’s share price rose about 6%, and Qualcomm’s share price decreased about 1.5%. I think the likelihood of NXP accepting Qualcomm’s offer is high, and the transaction could bring strategic benefits to Qualcomm like the opportunity to expand their business into the automotive industry. However, the deal between Broadcom and Qualcomm doesn’t look as good. Qualcomm is facing an offer that’s less than what they already considered too low, and Broadcom is now looking at a company that will have funded an extra $6 billion from cash on hand and new debt to buy NXP. Additionally, Qualcomm was recently fined $1.2 billion by the EU over antitrust violations with Apple. Although if a deal doesn’t go through, Broadcom may face an $8 billion fee paid to Qualcomm for breaking up the merger agreement. Qualcomm’s offer for NXP is extended until March 5th, and the next day, Qualcomm shareholders will decide if they want to elect 6 nominees representing Broadcom to an 11-member board – thus deciding the direction this deal will go in.

 

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