Qualcomm Surprisingly Denies Lucrative $121 Billion Bid From Broadcom – What’s the Reason This Time Other Than ‘Undervalued Offer’?

Omar Sohail
Qualcomm rejects Broadcom 121 billion offer

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It seems as if Broadcom won’t give up on Qualcomm anytime soon. Earlier this week, Broadcom sent another bid to acquire Qualcomm, making it one of the biggest in the tech industry. Today, Qualcomm’s board of directors rebuffed Broadcom again and rejected the offer unanimously. The chipset manufacturer surprisingly, had the same reason for denying the massive bid.

Qualcomm States That the Offer Undervalues the Company - $82 Was the Offer, While the Chipmaker’s Shares Stand at $61.72

According to the details present on the company’s website, Qualcomm says that the offer undervalues the company. It also says there is a negative risk involved if the acquisition fails because of the disapproval of the regulators. Qualcomm has offered to talk to Broadcom to come up with a better deal.

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This time, Broadcom came up with a ‘$82 per share’ offer, which would mean $60 per share in cash and $22 of Broadcom’s stock. Back in November, Broadcom had made an offer of $70 per share. Qualcomm’s chairman, Paul Jacobs, wrote a letter to Broadcom’s president, and said that this proposal has raised more questions. One of the questions is if Broadcom is ready to do anything to make the regulators approve the deal.

This deal is going to be a big one, and it is possible that it could be broken up. Apart from the publicly available information, Broadcom has not mentioned a breakup fee, though even that could be huge in monetary terms. Another issue outlined by Jacob was that there was no valuation for NXP, which is a semiconductor company that Qualcomm is acquiring. Although the acquisition isn’t final, the European authorities have given it the green light.

Broadcom has been eyeing Qualcomm for quite a while. On the other hand, Qualcomm is trying to acquire NXP since the last year but the deal hasn’t been finalized yet. This makes things interesting in the semiconductor arena.

After Qualcomm rejected Broadcom’s takeover bid, the stocks of both the companies shot up by more than 5 percent. This indicates that shareholders on both sides do not want the deal to go through. And, things should stay that way as they are now.

If you want to check out the entire communication message, it has been given below.

“The Qualcomm Board communicated its decision in the following letter to Broadcom:

February 8, 2018

Mr. Hock Tan

President and Chief Executive Officer

Broadcom Limited

1 Yishun Avenue 7

Singapore 768923

Dear Mr. Tan:

I am writing on behalf of the Board of Directors of Qualcomm Incorporated. The Board has reviewed your February 5, 2018 letter proposing to acquire Qualcomm for a combination of $60.00 in cash and $22.00 in Broadcom shares per Qualcomm share, as well as the materials filed publicly in connection with that letter. As presented, your proposal raises more questions than it answers.

The Board has unanimously determined that your amended offer materially undervalues Qualcomm and falls well short of the firm regulatory commitment the Board would demand given the significant downside risk of a failed transaction. However, the Board is committed to exploring all options for maximizing shareholder value, and so we would be prepared to meet with you to allow you to explain how you would attempt to bridge these gaps in both value and deal certainty and to better understand the significant issues that remain unaddressed in your proposal.

In the meeting, we would expect that you will be prepared to provide clear, specific and detailed answers to the questions below.

What is the true highest price at which you would be prepared to acquire Qualcomm? Is it $82 per share or is it higher? Your current proposal is inadequate as it materially undervalues Qualcomm. Your proposal ascribes no value to our accretive NXP acquisition, no value for the expected resolution of our current licensing disputes and no value for the significant opportunity in 5G. Your proposal is inferior relative to our prospects as an independent company and is significantly below both trading and transaction multiples in our sector.

Is Broadcom willing to commit to take whatever actions are necessary to ensure the proposed transaction closes?  This is extremely important to value preservation for our shareholders. The differences in our business models expose the Company to significant customer and licensee risk between signing and closing an agreement. It is indisputable that there are significant regulatory hurdles in your proposed transaction. It is also indisputable that if Qualcomm entered into a merger agreement and, after an extended regulatory review period the transaction did not close, Qualcomm would be enormously and irreparably damaged. If you are not willing to agree to do whatever is necessary to ensure a transaction closes, we will need you to be extremely clear and specific about exactly what actions you would refuse to take, so that we can properly evaluate the risk to Qualcomm’s shareholders.”

News Source: Qualcomm

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