Regulatory risk deemed too high in Broadcom/Qualcomm deal

Qualcomm meets Broadcom to discuss $121 acquisition offer

For the first time in Broadcom’s relentless bidding saga, top executives from Qualcomm agreed to meet with its representatives. The discussions surrounded the revised $121 billion bid acquisition offer.

The meeting was held on February 14 and marked the first time the chipmakers have discussed what would, and could, be the technology sector’s largest acquisition. Qualcomm says it met with Broadcom for two hours, and ‘listened carefully to what it had to say’.

The outcome of the meeting is set to determine whether Qualcomm, which has resisted Broadcom’s takeover approach since November, will engage in negotiations, or continue to defend itself by rallying its shareholders. Those shareholders are scheduled to vote on March 6 on replacing the majority of Qualcomm’s board with Broadcom nominees.

Neither Qualcomm nor Broadcom provided details of the content of the discussion, but Qualcomm was able to confirm in its statement that its board would be meeting ‘promptly’ to determine its next steps.

The meeting came shortly after Qualcomm’s board unanimously rejected Broadcom’s revised cash-and-stock bid of $82 per share last week. After the rejection, the firm reiterated that the offer undervalues Qualcomm and would not compensate the company in the event that the deal failed to attain regulator approval. Notably though, Broadcom’s offer did include a ‘reverse break-up fee’ in such an event – the largest such provisions ever offered in an acquisition bid.

Broadcom says its $121 billion offer to acquire Qualcomm is its ‘best and final offer’. The company states that it will be withdrawn after Qualcomm’s annual stockholder meeting, unless accepted prior to that, or, Broadcom’s nominees are elected to Qualcomm’s board.

The takeover battle is at the heart of a race to consolidate the wireless technology equipment sector, as smartphone makers such as Apple Inc and Samsung Electronics Co Ltd use their market dominance to negotiate down chip prices.

Broadcom is mainly a manufacturer whose connectivity chips are used in products ranging from mobile phones to servers. San Diego-based, Qualcomm primarily outsources the manufacturing of its chips which are used for the delivery of broadband and data, a business that would significantly benefit from the rollout of 5G wireless technology.

Update – February 21, 2018

After its meeting last week, Qualcomm announces that the regulatory risk associated with the merger is just too high, and, could leave both companies in a state of ‘limbo’…

But, is there is a possibility that Qualcomm be warming up to the relationchip with Broadcom? Maybe. Qualcomm have encouraged further discussions, releasing in a letter to Broadcom CEO Hock Tan, Qualcomm chairman Paul Jacobs details:

 “Our Board found the meeting to be constructive in that the Broadcom representatives expressed a willingness to agree to certain potential antitrust-related divestitures beyond those contained in your publicly filed merger agreement. At the same time, Broadcom continued to resist agreeing to other commitments that could be expected to be required by the FTC, the European Commission, MOFCOM and other government regulatory bodies. Broadcom also declined to respond to any questions about its intentions for the future of Qualcomm’s licensing business, which makes it very difficult to predict the antitrust-related remedies that might be required. In addition, Broadcom insists on controlling all material decisions regarding our valuable licensing business during the extended period between signing and a potential closing, which would be problematic and not permitted under antitrust laws”

While the Broadcom proposal was deemed ‘unacceptable’ by the Qualcomm board, we may not have seen the end of this saga…

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