Qualcomm Rejects Broadcom’s $105 Billion Acquisition Offer

On November 4, news reports stated that Broadcom was planning a bid to acquire Qualcomm in an effort to become the third largest chipset company in the world after Intel and Samsung. Two days later, Broadcom officially confirmed that it had sent an acquisition bid of $105 Billion. Broadcom had itself been acquired by Avago in 2014. After the acquisition, Avago chose to rename itself to Broadcom to preserve and take advantage of the brand’s goodwill.

A Bloomberg report on November 6 stated that Qualcomm was planning to reject Broadcom’s offer. This was corroborated by a Reuters report which stated that the company had drawn up plans to rebuff the offer on account of the bid being insufficient.

Through a press release, Qualcomm’s Board of Directors has unanimously rejected the proposal:

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.

The Board and Management are singularly focused on driving value for Qualcomm’s shareholders. After a comprehensive review, conducted in consultation with our financial and legal advisors, the Board has concluded that Broadcom’s proposal dramatically undervalues Qualcomm and comes with significant regulatory uncertainty.  We are highly confident that the strategy Steve and his team are executing on provides far superior value to Qualcomm shareholders than the proposed offer.

On the other hand, Broadcom CEO Hock Tan has stated he is open to launching a takeover battle, according to Reuter’s report. It added that his company was “preparing to submit a slate of directors by Qualcomm’s December 8 nomination deadline, [that] would allow Qualcomm shareholders to vote to replace the company’s board and force [it] to engage with Broadcom”.

If true, this would make the takeover battle one of the largest ones in the industry, as the sheer size and standing of Qualcomm guarantees that the acquisition will attract regulatory scrutiny in any case. The potential takeover battle and its result also has the possibility to change the dynamics of the chipset industry.

Reuters also mentioned that Broadcom has deliberated on the possibility of raising its $103 billion bid for Qualcomm, which would be achieved by including more debt financing. It is not yet clear when, and if, Broadcom would choose to make such a move.

The bid’s ultimate fate will have far-reaching implications on the chipset industry. The bid and its related corporate battles will act as a judgement on whether consolidation in the industry (by way of acquisitions) can achieve victory over competition.

Source 1: Qualcomm Source 2: Reuters

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