Qualcomm Inc. has raised its offer to acquire Dutch automotive chip maker NXP Semiconductors to $43 billion, which may help the San Diego company's case for remaining independent ahead of its hostile takeover showdown with rival Broadcom Ltd.
Qualcomm announced Tuesday that it had increased its offer for NXP to $127.50 a share from $110 a share. NXP's shares had been trading around $120 last week.
More importantly, nine shareholders who own a combined 28% of NXP stock and have been advocating for a higher price pledged to sell their shares to Qualcomm at the new price. They include Elliott Advisors, which has led the charge for Qualcomm to increase its original $38-billion bid. Elliott had been seeking $135 a share.
NXP makes chips used in keyless entry, infotainment and radar in cars, secure payment cards and many other technologies. It is an important cog in Qualcomm's argument for remaining a standalone company.
A deal with NXP would not only boost Qualcomm's profits by $1.50 a share by 2019 but also diversify Qualcomm's business beyond smartphones, in which sales have slowed.
Without NXP, Qualcomm's growth prospects from the expansion of cellular technologies into cars, "Internet of Things" gadgets and other new industries probably would be hamstrung.
"NXP is a highly strategic and attractive acquisition for Qualcomm that enhances the value of our leading 5G technologies," Chairman Paul Jacobs said in a statement. "We also believe the revised agreement provides certainty for both Qualcomm and NXP shareholders."
The NXP acquisition has been approved by eight global competition regulators but is still awaiting approval from China, which is on holiday until Saturday for Chinese New Year.
How the higher price plays into Broadcom's $121-billion hostile takeover effort for Qualcomm remains unclear. But it does make its acquisition more costly and possibly adds to the regulatory hurdles facing the deal.
Broadcom Chief Executive Hock Tan has said his $82-a-share "best and final" offer for Qualcomm was conditioned on the NXP deal closing at $110 a share or not at all. He hasn't said exactly what Broadcom would do if Qualcomm pays more for NXP.
Broadcom said early Tuesday that it was evaluating its options.
In a statement, Broadcom slammed Qualcomm's move, saying that the revised bid for NXP "is well beyond what Qualcomm has repeatedly characterized as a 'full and fair' price."
"We believe any responsible board would have seriously engaged with Broadcom regarding Broadcom's value-maximizing offer and the terms of the NXP acquisition," said the company, which is based in Singapore and San Jose. "Broadcom believes the price increase demonstrates the Qualcomm board's disregard for its fiduciary duty to maximize value for Qualcomm stockholders."
Broadcom has proposed six alternative nominees to Qualcomm's 11-member board of directors to push the $121-billion hostile takeover through. Qualcomm shareholders will vote to support either Broadcom's candidates or the existing board at the company's annual meeting March 6.
Broadcom got some good news recently when Institutional Shareholder Services, an influential investor advisory firm, recommended that Qualcomm shareholders vote to install four of Broadcom's six nominees for the Qualcomm board. Another proxy advisor, Glass Lewis, recommended Tuesday that Qualcomm shareholders support all six of Broadcom's alternative nominees.
Recommendations from Glass Lewis and ISS are important to big index funds and mutual funds, which own a significant percentage of Qualcomm's stock.
"We will see what Broadcom does now," Bernstein Research analyst Stacy Rasgon said in a note. "While their current offer is premised on NXP going at $110, they would of course not necessarily be precluded from making a new offer premised on the new NXP price."
Qualcomm noted that NXP's financial results last year were better than expected when the two companies entered into a merger agreement in October 2016. Operating income jumped 20% year over year, and automotive sales rose 11%.
In addition to raising the price it's offering for NXP, Qualcomm negotiated revised terms to its tender offer. Now, shareholders owning at least 70% of NXP stock must pledge to sell their shares for the acquisition to close, down from 80% previously.
Qualcomm plans to fund the increased price for NXP with existing cash and new debt. It has extended the deadline for NXP shareholders to pledge their shares to 9 p.m. Pacific time March 5.
Qualcomm's shares ended trading Tuesday down 86 cents, or 1.3%, to $63.99. Broadcom's shares were up 73 cents, or 0.3%, to $249.62.
5:35 p.m.: This article was updated with additional analysis and closing stock prices.
8:20 a.m.: This article was updated with a statement from Broadcom and with stock prices.