Qualcomm proposes more talks with Broadcom over possible sale — but price remains a hurdle

Qualcomm proposes more talks with Broadcom over possible sale — but price remains a hurdle
Qualcomm Chairman Paul E. Jacobs said regulatory issues surrounding the Broadcom deal might be overcome, but price remains a sticking point. (Scott Olson / Getty Images)

Qualcomm said Monday it is ready for further talks with rival and potential buyer Broadcom to see if the two sides can negotiate a sale of the San Diego cellular technology giant, with price remaining a key sticking point.

In a letter sent to Broadcom on Monday, Qualcomm Chairman Paul Jacobs revealed that representatives of the two companies met for a second time on Feb. 23, where they made progress on some of the protections Qualcomm is seeking during what's expected to be a long regulatory review of the deal by global competition agencies.


But Qualcomm also wants additional steps — including a higher break-up fee should antitrust regulators block the deal and more details about Broadcom's plans to revamp Qualcomm's lucrative patent-licensing business.

In addition, Qualcomm contends Broadcom's $79-per-share offer remains well below the fair value of the company given its pending acquisition of NXP Semiconductors to diversify beyond smartphones, an eventual settlement of legal disputes with Apple surrounding patent fees, and growth from new 5G mobile networks.

"While we have made progress on regulatory and other deal-certainty issues, you have continued to insist that your current $79 per share proposal is your best and final proposal," Jacobs said in the letter to Broadcom Chief Executive Hock Tan.

Qualcomm's board "continues to be of the unanimous belief that each of your proposals, including your prior $82 per share proposal, materially undervalues Qualcomm."

Qualcomm's willingness to talk comes as the San Diego company's shareholders are expected to vote March 6 on whether to support Broadcom's hostile takeover bid.

Broadcom has nominated six alternative candidates to Qualcomm's board of directors, which would give Broadcom a majority to push through its $117-billion takeover — the largest ever in the technology industry.

Broadcom's effort got a boost last week when two influential shareholder advisors recommended that Qualcomm stockholders support at least some of Broadcom's board nominees.

The recommendations likely helped influence Qualcomm's board to propose further talks.

"We do not know for certain what is bringing this shift in attitude, though we suspect recent points of view offered by the proxy services Institutional Shareholder Services and Glass Lewis, as well as the company's recent meetings with shareholders, may be part of it," wrote Bernstein analyst Stacy Rasgon.

According to the letter, Broadcom dropped its demand to control major decisions surrounding Qualcomm's patent-licensing arm while the deal was pending, which Jacobs called progress.

Qualcomm wants Broadcom to increase its break-up fee to 9% of the value and debt of Qualcomm, including its pending acquisition of Dutch automotive chipmaker NXP.

Rasgon estimated that amount to be roughly $13.5 billion — up from the $8 billion in Broadcom's current offer. The high break-up fee is based on the Baker Hughes/Halliburton merger, which also involved complex regulatory issues and eventually failed.

In addition, Qualcomm wants more information about Broadcom's plans for changing patent licensing — which makes up a majority of Qualcomm's profits and funds much of its research and development to create new technologies.

Broadcom has declined to spell out its plans, claiming it would violate antitrust laws. But Jacobs said knowing how Broadcom would change its patent-licensing arm is vital to understanding the "antitrust risks and value implications" of the deal.


Qualcomm proposed using an antitrust law firm as an intermediary to share permissible information on licensing, then meeting again to hammer out the remaining regulatory hurdles.

Qualcomm also suggested entering into a nondisclosure agreement to share information on price.

"We appreciate that we have differences in our views on value, and ours is based on significantly more information than the public data you now have at your disposal," the letter said.

Qualcomm is confident that it can deliver $7 per share in adjusted earnings by 2019, which implies a stock price of about $100 per share.

Broadcom has yet to respond to the letter. Qualcomm's shares were up 2.5% at $64.93 in early trading Monday on the Nasdaq.

Mike Freeman is a San Diego Union-Tribune staff writer.

Twitter: @TechDiego


10 a.m.: This article was updated throughout with San Diego Union-Tribune reporting.

This article was originally published at 7 a.m.