Broadcom to sweeten hostile bid for Qualcomm to $120 bn

Broadcom Ltd plans to raise its bid for Qualcomm Inc to around $120 billion, both Bloomberg and Reuters reported today citing unnamed sources, as it tries to force Qualcomm to come to the table in what would be the largest-ever technology deal.

 
Hock E Tan, president and CEO, Broadcom (L) and Steve Mollenkopf , CEO Qualcomm  

The chipmaker is considering lifting its offer to about $80 to $82 per Qualcomm share, as Reuters first reported. Qualcomm CEO Steve Mollenkopf  had dismissed Broadcom's earlier proposal of $70 per share as not being worth consideration. Broadcom plans to announce the new bid this morning US time, the reports said.

The move comes ahead of a Qualcomm shareholder meeting scheduled for 6 March, when Broadcom is seeking to replace Qualcomm's board of directors by nominating its own slate for election.

Broadcom was meeting with its advisers late on Sunday to finalise an offer that values Qualcomm between $80 and $82 per share. Broadcom's previous $70 per share offer consisted of $60 per share in cash and $10 per share in stock.

Broadcom also plans to offer Qualcomm a higher-than-usual breakup fee in the event regulators thwart the deal, according to Reuters' sources. Typically, such break-up fees equate to approximately 3 per cent to 4 per cent of a deal's size.

Broadcom chief executive officer Hock Tan is putting pressure back on Mollenkopf and his board, who have so far refused to negotiate. By sweetening the offer, he's also improving prospects for his nominations to Qualcomm's board in a shareholder vote next month. A victory in that effort would void the current opposition.

The situation is fluid, and the exact level of the new bid hasn't been finalised.

Broadcom's hostile bid for the larger San Diego-based company is the latest and most audacious move by Tan in a string of deals that have made his company one of the world's largest suppliers of semiconductors. He wants Qualcomm for its leading smartphone modem chip division, an example of what he calls a ''franchise'' that will continue to dominate, according to Bloomberg.

Qualcomm has countered that its future is much brighter as a standalone company. It said it's on the cusp of breaking into new markets for products such as servers, personal computers and autos, putting it on a path to becoming a much bigger company.

That argument has been hurt by attacks on its licensing business. Regulators around the world are fining or investigating Qualcomm, supporting elements of Apple Inc.'s claims in a lawsuit against the company that it abuses its dominant position. Qualcomm has countered that it expects to win in court over time.

Qualcomm is engaged in a patent infringement dispute with Apple Inc. Qualcomm has said the litigation is necessary in order to defend is licensing programmes.

Qualcomm is also trying to clinch an acquisition of its own, proposing to buy NXP Semiconductors NVfor $38 billion. The deal was approved by European Union antitrust regulators last month, and only China has yet to approve it. Qualcomm expects the government's blessing later this month.

The NXP deal still faces an uncertain future as some of its shareholders, including activist hedge fund Elliott Management Corp, have asked Qualcomm to raise its offer. Qualcomm is expected to make a decision later this month.

The fate of Qualcomm's licensing business is a key to its future. The company is unique in the chip industry because most of its profit comes from charging fees on patents that cover the fundamentals of all modern phone systems. That cash influx fuels industry-leading research and design that in turn helps its chip unit build products that dominate the smartphone industry.

Investors will have to choose whether they want to take the money from Broadcom now or sit tight and hope for a favourable resolution of its legal entanglements and for the promised new market growth to kick in.

Before reports of Broadcom's $70-a-share offer in November, Qualcomm's stock had been trading at less than $55, partly because of worries its earnings would continue to be hurt by customers such as Apple refusing to pay. Investors contacted by Bloomberg at the time of the initial bid said they would need more than $80 a share to be persuaded to side with Broadcom.

Broadcom has said it is very confident a deal can be completed within 12 months of signing an agreement. Qualcomm counters that the regulatory review processes required around the world would take more than 18 months and be fraught with risks.

Qualcomm provides chips to mobile carrier networks to deliver broadband and data, making it an attractive acquisition target for Broadcom, which hopes to expand its offerings in so-called 5G wireless technology.