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QUALCOMM (QCOM)
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Qualcomm : and Broadcom Spar Over Latest Merger Proposal -- 2nd Update

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02/09/2018 | 08:49am CET
By Ted Greenwald 

Qualcomm Inc. rejected Broadcom Ltd.'s sweetened offer of more than $121 billion but opened the door for the first time to talks with its hostile suitor.

Broadcom responded late Thursday with a letter urging Qualcomm to meet as soon as possible and providing it with a proposed merger agreement.

Qualcomm earlier Thursday said its board decided unanimously that the latest offer of $82 a share, which Broadcom Chief Executive Hock Tan proposed earlier this week as his "best and final offer," considerably undervalues the chip maker. The directors also said the revised offer still doesn't go far enough to ensure international regulators would approve it.

However, Qualcomm offered to meet with Broadcom to address these issues.

Qualcomm shares rose 1.2% to $63.15 in after-hours trading. Broadcom shares were up fractionally at $230.40.

In a letter made public Thursday evening in California, Mr. Tan said that Broadcom had offered to meet with Qualcomm in the coming several days, but that Qualcomm had been unwilling to meet until Tuesday, after the companies are scheduled to meet with Institutional Shareholder Services Inc. and Glass Lewis & Co., firms that advise big shareholders on corporate votes.

"We urge you to meet with us without further delay," Mr. Tan wrote.

Broadcom also provided a proposed merger agreement that included a provision for an $8 billion fee it would pay Qualcomm, under certain conditions, if a deal were to fail for regulatory reasons.

Broadcom launched its bid in early November, offering $105 billion, or $70 a share, in what would be tech's largest-ever deal. Qualcomm rejected the offer, prompting its chip rival to go hostile, nominating its own directors for Qualcomm's board.

Qualcomm shareholders will have a chance to vote on Broadcom's slate at a scheduled March 6 meeting.

Mr. Tan's revised bid, which represents a 50% premium over Qualcomm's share price the day before news reports of an expected approach, included an unspecified breakup fee, which Mr. Tan in an interview Monday said would amount to billions of dollars. It also included an additional fee to compensate shareholders if the regulatory process took more than a year.

Mr. Tan said in the Monday interview that to satisfy regulators, Broadcom is ready to divest itself of businesses in which the company and Qualcomm overlap, including Wi-Fi chips for communications networks and chips that process cellular signals in handsets.

In an open letter to Mr. Tan on Thursday, Qualcomm Chairman Paul Jacobs questioned whether $82 a share was indeed his highest offer. "What is the true highest price at which you would be prepared to acquire Qualcomm?" he asked.

"Your proposal is inferior relative to our prospects as an independent company and is significantly below both trading and transaction multiples in our sector," he said in the letter.

Mr. Jacobs said Broadcom's latest bid failed to take into account Qualcomm's value if it resolves its dispute with Apple Inc., which is withholding billions in royalty payments as lawsuits wend their way through courts in several countries, and completes its yearlong pursuit of NXP Semiconductors NV, a deal still awaiting antitrust approval in China.

Broadcom's revised offer also didn't account for Qualcomm's opportunities as the fifth-generation cellular standard known as 5G reaches the market, Mr. Jacobs said. Qualcomm believes its 5G market could be worth more than $50 billion by 2020, according to a mid-January presentation to shareholders.

Mr. Tan's response Thursday night reiterated that $82 a share is Broadcom's "best and final offer."

Qualcomm has said it regards a world-wide regulatory green light as unlikely. In the letter, Mr. Jacobs requested Broadcom commit to taking any necessary steps to get the proposed merger through international regulatory approvals.

Qualcomm said it has other issues to discuss but didn't elaborate. The company said it would "reach out" to Broadcom to schedule a meeting.

Steven Ré, investment chief at Fairbanks Capital Management Inc., whose portfolios are 17% made up of Qualcomm stock, said he is delighted the companies are finally engaging.

"In a peaceful deal, they can probably talk Hock Tan up another $5, maybe $7," he said.

Write to Ted Greenwald at [email protected]

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Financials ($)
Sales 2018 22 221 M
EBIT 2018 5 599 M
Net income 2018 -3 326 M
Finance 2018 12 264 M
Yield 2018 3,62%
P/E ratio 2018 -
P/E ratio 2019 21,52
EV / Sales 2018 3,77x
EV / Sales 2019 3,61x
Capitalization 96 002 M
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Mean consensus OUTPERFORM
Number of Analysts 20
Average target price 71,7 $
Spread / Average Target 11%
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Managers
NameTitle
Steven M. Mollenkopf Chief Executive Officer & Director
Cristiano R. Amon President
Paul E. Jacobs Executive Chairman
George S. Davis CFO, Principal Accounting Officer & Executive VP
Mary Gendron Chief Information Officer & Senior Vice President
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