Qualcomm rejects Broadcom's $103-billion takeover bid, setting stage for a proxy fight

Experts believe Apple — Qualcomm’s biggest customer — will need to be on board for Broadcom's deal to go forward.

Qualcomm Inc. rejected rival chipmaker Broadcom Ltd.'s unsolicited $103-billion takeover bid Monday, calling the price too low — a move that sets the stage for a hostile proxy fight for control of San Diego-based Qualcomm.

"It is the board's unanimous belief that Broadcom's proposal significantly undervalues Qualcomm relative to the company's leadership position in mobile technology and our future growth prospects," Paul Jacobs, Qualcomm's executive chairman and chairman of the board, said in a statement.


Qualcomm also said that the bid "comes with significant regulatory uncertainty," a nod to the scrutiny such a deal would face.

Broadcom had offered $60 a share in cash and $10 in stock for Qualcomm — a 28% premium over the company's share price before news of the bid leaked Nov. 3. All told, it would be the largest tech deal ever.

Broadcom responded Monday by reasserting its commitment to the acquisition.

"We continue to believe our proposal represents the most attractive, value-enhancing alternative available to Qualcomm stockholders and we are encouraged by their reaction," Broadcom Chief Executive Hock Tan said in a statement. "Many have expressed to us their desire that Qualcomm meet with us to discuss our proposal. It remains our strong preference to engage cooperatively with Qualcomm's board of directors and management team."

Qualcomm shares rose 3% to 66.49 on Monday after the company rejected Broadcom's bid. Broadcom shares rose 5 cents to $265.01.

If a deal between the two chipmakers is completed, the combined company would have annual sales of $51 billion — trailing only Intel and Samsung in the semiconductor industry. Any such deal would face tough regulatory scrutiny, particularly in Europe and China.

Analysts have seen Broadcom's bid as an offensive move to take advantage of Qualcomm's lagging stock price, which was down 18% over the trailing 12 months before Broadcom's takeover offer.

"We fully expected [Qualcomm's board] to reject Broadcom," said Mike Walkley, an analyst with Canaccord Genuity. "Broadcom's bid of $70 per share, and Qualcomm's rejection of it, shows both companies' confidence that the Apple licensing dispute can get resolved."

Qualcomm's shares have been weighed down by its nasty legal battle with Apple Inc. over patent royalties, fines from antitrust regulators and slow progress on its planned $38-billion acquisition of NXP Semiconductors.

The San Diego company has preached patience.

"No company is better positioned in mobile, IoT, automotive, edge computing and networking within the semiconductor industry," Qualcomm Chief Executive Steve Mollenkopf said in a statement. "We are confident in our ability to create significant additional value for our stockholders as we continue our growth in these attractive segments and lead the transition to 5G."

Meanwhile, Broadcom's shares have surged nearly 50% in the last 12 months as it completed the Broadcom/Avago Technologies acquisition, paid down debt and increased revenue and profitability.

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

Tan brought up the idea of a Broadcom-Qualcomm combination in August 2016, when Qualcomm's shares traded at significantly higher prices.


Broadcom probably will raise its bid and try to force a hostile takeover by nominating members to Qualcomm's board of directors to help push the deal through, Canaccord's Walkley said.

Canaccord, which rates Qualcomm's stock as a buy, believes Qualcomm shareholders are looking for a bid of more than $80 per share. The value assumes Qualcomm can settle its royalty dispute with Apple and receive at least $5 per iPhone, or half the value of the royalty before the dispute.

Qualcomm's board members are up for reelection annually. Broadcom has until Dec. 8 to submit a slate of alternative candidates.

"I do strongly believe that Qualcomm wants to remain independent, but it might be out of its control now," Walkley said. "I think we're in the early stages of a longer-term battle."