Broadcom said its $121 billion acquisition proposal for Qualcomm is the “best and final” offer after the target’s board unanimously rejected the sweetened bid, likely leaving the future of the hostile takeover bid to be decided by shareholders next month.
Qualcomm was impelled by Broadcom Chief Executive Officer Hock Tan to discuss the $82 per share offer and dangled the prospect of an $8 billion reverse termination fee in a letter to Paul Jacobs, chairman of the board. Tan claimed to be “astonished” that Jacobs wasn’t willing to meet until Tuesday, after the companies are scheduled to meet with proxy advisers Glass Lewis and ISS.
The chipset manufacturer surprisingly, had the same reason for denying the massive bid. ‘Qualcomm States That the Offer Undervalues the Company – $82 Was the Offer, While the Chipmaker’s Shares Stand at $61.72’ According to the details present on the company’s website, Qualcomm says that the offer undervalues the company. It also says there is a negative risk involved if the acquisition fails because of the disapproval of the regulators. Qualcomm has offered to talk to Broadcom to come up with a better deal.
Back in November, Broadcom offered of $70 per share. Qualcomm’s chairman, Paul Jacobs, wrote a letter to Broadcom’s president, and said that this proposal has raised more questions. One of the questions is if Broadcom is ready to do anything to make the regulators approve the deal.
Following is the entire communication message between the two companies.
“The Qualcomm Board communicated its decision in the following letter to Broadcom:
February 8, 2018
Mr. Hock Tan
President and Chief Executive Officer
1 Yishun Avenue 7
Dear Mr. Tan:
I am writing on behalf of the Board of Directors of Qualcomm Incorporated. The Board has reviewed your February 5, 2018 letter proposing to acquire Qualcomm for a combination of $60.00 in cash and $22.00 in Broadcom shares per Qualcomm share, as well as the materials filed publicly in connection with that letter. As presented, your proposal raises more questions than it answers.
The Board has unanimously determined that your amended offer materially undervalues Qualcomm and falls well short of the firm regulatory commitment the Board would demand given the significant downside risk of a failed transaction. However, 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.
In the meeting, we would expect that you will be prepared to provide clear, specific and detailed answers to the questions below.
What is the true highest price at which you would be prepared to acquire Qualcomm? Is it $82 per share or is it higher? Your current proposal is inadequate as it materially undervalues Qualcomm. Your proposal ascribes no value to our accretive NXP acquisition, no value for the expected resolution of our current licensing disputes and no value for the significant opportunity in 5G. Your proposal is inferior relative to our prospects as an independent company and is significantly below both trading and transaction multiples in our sector.
Is Broadcom willing to commit to take whatever actions are necessary to ensure the proposed transaction closes? This is extremely important to value preservation for our shareholders. The differences in our business models expose the Company to significant customer and licensee risk between signing and closing an agreement. It is indisputable that there are significant regulatory hurdles in your proposed transaction. It is also indisputable that if Qualcomm entered into a merger agreement and, after an extended regulatory review period the transaction did not close, Qualcomm would be enormously and irreparably damaged. If you are not willing to agree to do whatever is necessary to ensure a transaction closes, we will need you to be extremely clear and specific about exactly what actions you would refuse to take, so that we can properly evaluate the risk to Qualcomm’s shareholders.”
This deal is going to be a big one, and it is possible that it could be broken up. Apart from the publicly available information, Broadcom has not mentioned a breakup fee, though even that could be huge in monetary terms. Another issue outlined by Jacob was that there was no valuation for NXP, which is a semiconductor company that Qualcomm is acquiring. Although the acquisition isn’t final, the European authorities have given it the green light.
Qualcomm’s licensing business is central to both its profits and its ability to stay ahead in mobile-phone chip technology. Most of the company’s profit comes from collecting fees for the use of patents that cover the fundamentals of all modern phone systems. That cash influx fuels industry-leading research and design, which in turn helps the chip unit build the most advanced products. Management has argued that leadership in smartphones will help Qualcomm expand into new areas such as server chips, personal-computer processors and automotive chips.