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Qualcomm not convinced by Broadcom’s offer despite $8b safety-net

12 Feb 2018

Qualcomm has explained why they rejected Broadcom’s US$121 billion offer in a statement filed on Friday, February 9 with the US Securities and Exchange Commission.

In the statement, Qualcomm elaborate on the risks they see in moving ahead with the deal, outlining six primary concerns and asking rhetorically, “Why would shareholders support this deal?”

The concerns include the risk of not receiving regulatory approval, disruption to Qualcomm’s business operations and, strikingly, a reference to two billion-dollar customers who stated that they would take their designs elsewhere if the deal was approved.

On Thursday, February 8 Qualcomm’s Board of Directors unanimously rejected the proposal by Broadcom to acquire all of the outstanding shares of Qualcomm for US$82.00 per share ($60.00 in cash and $22.00 in Broadcom stock).

Broadcom made their original offer of $70.00 per share ($60 in cash and $10 in stock)  in November last year, followed by their increased offer on February 5. 

In the rejection letter addressed to Broadcom president and CEO Hock Tan, the offer is described by Qualcomm board chairman Paul E. Jacobs as undervaluing Qualcomm and failing to meet expectations for regulatory commitment.

He goes on to say that “the Board is committed to exploring all options for maximizing shareholder value,” and that that they would be ready to meet in order to address the “gaps in both value and deal certainty and to better understand the significant issues that remain unaddressed.”

Jacobs adds that in any meeting the Board would expect the answer to two questions - “What is the true highest price at which you would be prepared to acquire Qualcomm? Is it $82 per share or is it higher?” and “Is Broadcom willing to commit to take whatever actions are necessary to ensure the proposed transaction closes?”

In response, Tan penned his own letter that same day welcoming the meeting and offering “an $8 billion regulatory reverse termination fee” as well as stating firmly that “$82 per Qualcomm share is our best and final offer.”

Tan also pushed to have the meeting over the weekend, expressing disappointment that Qualcomm was not prioritising the meeting having proposed scheduling it for Tuesday, February 13.

Qualcomm’s Friday statement also covers issues that may arise due to antitrust issues, competition concerns, and regulatory issues across the US, China and Europe.

“In summary,” the statement says, “Broadcom’s proposal threatens destruction of Qualcomm’s value - including through wholesale changes to Qualcomm’s licensing program and proposed divestitures of Qualcomm’s product businesses - while reserving Broadcom’s right to walk away from the deal simply by paying a fee that will inevitably fall short of compensation for the harm inflicted on Qualcomm.”

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