Can Qualcomm Reject Broadcom’s ‘Best and Final’ Offer?

February 5, 2018 by Paul Ausick

Chipmaker Broadcom Ltd. (NASDAQ: AVGO) took a step Monday morning that just about everyone has expected. It raised its bid for Qualcomm Inc. (NASDAQ: QCOM) from $70 a share in cash and stock to $82 a share in cash and stock. The total value of the deal rises from around $82 billion to $121 billion.

The amount of cash — $60 a share — is unchanged. The additional $12 comes Broadcom shares. According to Broadcom, the $82 price represents a premium of 50% to Qualcomm’s share price on November 2, 2017, the day when speculation about the potential acquisition was first published.

The offer has two caveats. First, Qualcomm’s bid for NXP Semiconductor N.V. (NASDAQ: NXPI) must either be completed at the current offer price or rejected. Second, Qualcomm may not delay or cancel its scheduled annual meeting set for March 6.

In a letter from Broadcom’s board to Qualcomm’s board, Chairman and CEO Hock Tan said:

This proposal to acquire Qualcomm is extremely compelling compared to any other alternative available to Qualcomm, with or without the acquisition of NXP, and we believe any responsible board would engage with us, without further delay, to turn this proposal into an executed definitive agreement. We continue to hope you choose to engage with us for the benefit of your stockholders. However, we will withdraw this proposal and cease our pursuit of Qualcomm immediately following your upcoming annual meeting unless we have entered into a definitive agreement or the Broadcom-nominated slate is elected.

The offer adds to the pressure on Qualcomm CEO Steve Mollenkopf, who is trying to sort out a royalty dispute with Apple and its suppliers. Qualcomm relies on royalty payments for its technology for most of its profits, and the now year-old dispute with Apple is getting very costly.

Given the chance, would shareholders vote to take Broadcom’s offer or wait for Qualcomm to sort out its legal dispute and take on more debt with the acquisition of NXP? Activist investor Paul Singer has already demanded that Qualcomm raise its offer for NXP. Because Broadcom’s sweetened offer does not include that possibility, Qualcomm is going to get squeezed from both sides. What is the path of least resistance or, put another way, the path that shareholders will vote for?

Broadcom stock traded up about 2% in Monday’s premarket, at $240.00 in a 52-week range of $202.61 to $285.68. The 12-months consensus price target on the stock is $317.41.

Qualcomm shares traded down about 2% to $64.75, in a 52-week range of $48.92 to $69.28. The stock’s consensus price target is $70.29.

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