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Broadcom's offer to buy Qualcomm for $105 billion is tech's largest attempted takeover

Qualcomm Inc. said it has received a buyout offer from Broadcom Ltd. of $70 a share in cash and stock. The proposed deal, valued at about $105 billion, would be the largest in semiconductor industry and is sure to draw regulatory scrutiny.

There has already been broad consolidation in the computer chip sector, and a tie-up between the two giant companies would create a massive producer.

Qualcomm and Broadcom compete on several fronts, including Wi-Fi/Bluetooth technology and radio frequency front-end transceivers/amplifiers.

“This deal would give Broadcom a leading position in virtually every high-value semiconductor socket in a smartphone,” Bernstein Research analyst Stacy Rasgon said in a note to clients.

The San Diego wireless giant said in a statement Monday that Broadcom’s unsolicited offer consisted of $60 a share in cash and $10 a share in Broadcom’s stock. Qualcomm said its board and financial advisors would examine the deal, and declined further comment.

Broadcom said its proposal is a 28% premium over the closing price of Qualcomm common stock on Nov. 2, the last trading day before rumors surfaced of a possible acquisition. Broadcom also would assume $25 billion in Qualcomm debt.

Qualcomm’s shares ended trading Monday up 71 cents at $62.52. Broadcom’s shares gained $3.89 to close at $277.52 on Nasdaq.

The proposal sets up a tough question for Qualcomm's board and shareholders: Accept an offer now that would value the company at more than $100 billion, or hang on to hopes that new 5G wireless networks and the expansion of cellular technologies into other industries will result in an even higher value in the long term?

In a statement, Qualcomm said it “has significant opportunities to drive substantial additional value for its shareholders as its technology and product roadmap moves into new industries.”

If successful, the deal would combine two of the largest makers of wireless communications chips for mobile phones and create a company with a combined market capitalization of more than $200 billion.

The bid for Qualcomm came just days after reports that Broadcom’s Hock Tan was consulting with financial advisors about an unsolicited bid and after Tan held a news conference with President Trump to announce that Broadcom, currently based in Singapore, planned to move its corporate domicile to the United States.

The deal is the most ambitious move yet by Tan, who is known for building his companies through acquisitions and cost-cutting.

A native of Malaysia, Tan has headed several tech companies, including Emulex Corp., Integrated Circuit Systems Inc. and Avago Technologies.

"Our proposal provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company," Tan said in a statement.

"This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products. We would not make this offer if we were not confident that our common global customers would embrace the proposed combination,” he said.

Mike Walkley, an analyst with Canaccord Genuity, said Qualcomm’s board of directors “would likely reject this initial roughly $100 billion potential offer as too low and prefer to remain independent.”

The rejection could set up a scenario in which Broadcom launches a proxy battle to win board seats.

The unsolicited offer comes as Qualcomm is trying to close its $38-billion acquisition of NXP Semiconductors. NXP is one of the largest makers of chips for vehicles and is expanding into self-driving technology.

Broadcom’s offer stands whether the pending NXP transaction is completed or not, the company said.

Antitrust officials, who also would have to approve a Broadcom-Qualcomm deal, are still considering Qualcomm's purchase of NXP.

Qualcomm has approval from five global regulators but is waiting on reviews in Europe, China, South Korea and Japan. Activist NXP shareholders have been lobbying NXP to seek a higher price from Qualcomm.

Analysts from Standard & Poor’s noted that the proposed acquisition “will face significant regulatory scrutiny given its scale and potential customer concentrations in wireless and networking end markets. This also adds more uncertainty to a challenging business environment that Qualcomm currently faces.”

The buyout offer comes as Qualcomm fights a fierce legal battle with Apple over patent royalties, and it faces hefty fines and lawsuits from anti-monopoly regulators in the U.S., South Korea and Taiwan.

Those troubles weighed heavily on Qualcomm’s full fiscal year results released last week of $22.3 billion in sales and net income of $1.65 billion, down 57% from the prior year. Before rumors of Broadcom’s offer, Qualcomm’s stock price had declined 18% over the previous 12 months.

Buying NXP would diversify Qualcomm beyond smartphones — pushing it into automotive micro-controllers, near field communications, the internet of things and other new markets.

Broadcom was created last year when Tan’s Avago Technologies Ltd. bought Irvine-based chip maker Broadcom Corp. for $37 billion and then adopted the Broadcom name for the combined company.

Founded in 1985, Qualcomm ranks among San Diego County’s largest employers with roughly 13,000 local workers and about 33,800 worldwide. Its technology powers the cellular connection for most smartphones on the planet.

Over the years, the company has become woven into the fabric of the region — including its support for UC San Diego, co-founder Irwin Jacobs’ $120-million pledge (with his wife, Joan) to the San Diego Symphony and the Qualcomm Foundation’s work with food banks.

mike.freeman@sduniontribune.com

Times staff writer James F. Peltz contributed to this report.


UPDATES:

6:35 p.m.: This article was updated with reporting by the San Diego Union-Tribune.

10:25 a.m.: This article was updated with analyst comment, more recent stock prices, and information about the Qualcomm-NXP deal.

7:30 a.m.: This article was updated with analyst comment and Broadcom history.

6:55 a.m.: This article was updated throughout with additional details.

This article was originally published at 5 a.m.

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