Jamaica Gleaner / Broadcom made an unsolicited, US$103 billion offer for rival chipmaker Qualcomm, the tech industry’s largest attempted takeover that is destined to come under intense regulatory scrutiny.
The company said on Monday that it would not have pushed forward with the proposed buyout if it was not confident that its global customers “would embrace”.
It was not clear who Broadcom was referring to, but Apple is Qualcomm’s biggest customer. Qualcomm and Apple have been locked in a long running legal battle, with Apple refusing to pay any royalties owed to Qualcomm for some of the features in the iPhone.
Industry analysts believe that if Apple does not challenge the deal, it’s one hurdle that Broadcom will have cleared.
“Given Apple’s significance, we believe this deal will not go forward unless Apple is on board,” wrote analysts with William Blair.
William Blair’s Anil Doradla also wrote Broadcom’s recent decision to move its legal home from Singapore to the United States would likely take a “more amiable approach towards handset industry players” and try to resolve Qualcomm’s existing legal disputes.
There has already been broad consolidation in the computer chip sector and a tie-up between the two giant companies would create a massive producer.
The Broadcom offer of US$70 per share to Qualcomm stockholders would be US$60 per share in cash and US$10 per share of Broadcom. Broadcom says its proposal is a 28 per cent premium over the closing price of Qualcomm common stock on November 2, the last “unaffected” trading day for the companies.
It has also offered to pick up US$25 billion in debt.
“We would not make this offer if we were not confident that our common global customers would embrace the proposed combination,” Broadcom Corp CEO Hock Tan said in a company release Monday. “With greater scale and broader product diversification, the combined company will be positioned to deliver more advanced semiconductor solutions for our global customers and drive enhanced stockholder value.”
REVIEWING BID Qualcomm, based in San Diego, said that it is reviewing the bid, and that it will have no comment until that review is completed by its board.
Broadcom Limited, which manufactures communications chips around the world, said last week it would relocate its legal address to Delaware once shareholders approve the move, bringing US$20 billion in annual revenue back to the US. Its most recently reported annual revenue was US$13.2 billion worldwide.
A year ago, the company entered a US$5.5 billion agreement to merge with U.S. network provider Brocade Communications Systems, but that has been delayed while it’s scrutinised by the Committee on Foreign Investment in the United States, CFIUS. The high-level government committee investigates proposed acquisitions of US companies by foreign buyers on national security and intellectual property grounds.
By relocating its legal home in the US, Broadcom can avoid the CFIUS process. Broadcom’s corporate headquarters are in San JosÈ, California.
Last week, Qualcomm reported revenue of US$22.3 billion for fiscal 2017. Broadcom said if the deal is approved, it expected a combined company to have revenues of about US$51 billion.