Broadcom has announced a proposal to acquire mobile chip maker Qualcomm in a deal valued at $130 billion, including $25 billion of debt, which - if completed - could be a technology takeover for the record books.
UPDATE: 13 / 11 / 2017 - Qualcomm's board of directors has unanimously rejected Broadcom's proposal.
Under Broadcom's proposal, the $70 per share to be received by Qualcomm stockholders would consist of $60 in cash and $10 in Broadcom shares, representing a 28% premium over the closing price of Qualcomm common stock on November 2, 2017. That date is significant because it was the last unaffected trading day before media speculation about a potential transaction tickled the stock.
Qualcomm confirmed that it had received the ‘unsolicited’ proposal but declined to comment further.
The deal would combine Qualcomm’s mobile chip business with Broadcom’s broad platform of communications semiconductor technologies to create – in the company’s own words – “a global communications leader” with an impressive portfolio of technologies and products.
In a letter to Qualcomm, Hock Tan, Broadcom’s president and chief executive officer, said: “We have great respect for the company founded 32 years ago by Irwin Jacobs, Andrew Viterbi and their colleagues, and the revolutionary technologies they developed. Following the combination, Qualcomm will be best positioned to build on its legacy of innovation and invention.”
Broadcom points to its strong track record of integrating companies, having completed five major acquisitions since 2013. Its combination with Avago completed in January 2016 (see Avago Technologies to buy Broadcom for $37B), and it is in the process of acquiring Brocade (see Broadcom buys Brocade for storage network switching).
Qualcomm is no stranger to acquisition either, and is currently trying to buy NXP Semiconductor. Broadcom said its proposal stands whether Qualcomm's pending acquisition of NXP is consummated on the currently disclosed terms of $110 per share or terminated.
Should the acquisition be successful, Broadcom and Qualcomm, including NXP, would have pro forma fiscal 2017 revenues of about $51 billion and earnings before tax of $23 billion, including synergies.
Thomas Krause, Broadcom’s chief financial officer, added, “Given the complementary nature of our products, we are confident that any regulatory requirements necessary to complete a combination with Qualcomm will be met in a timely manner. We look forward to engaging immediately in discussions with Qualcomm so that we can sign a definitive agreement and complete this transaction expeditiously.”
Broadcom intends to redomicile, to change the parent company of the Broadcom corporate group from a Singapore company to a US corporation – a move that would avoid the need for additional regulatory scrutiny when a US firm combines with a foreign one.
In a letter to Qualcomm, Hock Tan, president and chief executive officer said: “Since I discussed a combination with Steve in August of last year, Broadcom has successfully completed the integration of the Broadcom-Avago combination, de-levered its balance sheet and meaningfully increased revenues and profitability. As a result, Broadcom stockholders have been rewarded with a 55 per cent appreciation in Broadcom's stock price since that time, ranking in the top 10 per cent among the S&P 500 over that period. We believe these factors, coupled with our history of successful acquisitions and integrations, clearly demonstrate our commitment and ability to implement value-enhancing transactions and deliver robust results for stockholders, employees, customers and other stakeholders.”
The proposed transaction will not be subject to any financing conditions. BofA Merrill Lynch, Citi, Deutsche Bank, J.P. Morgan and Morgan Stanley are highly confident that they will be able to arrange the necessary debt financing for the proposed transaction. Silver Lake Partners, which has served as a strategic partner to Broadcom in prior transactions, has provided Broadcom with a commitment letter for a $5 billion convertible debt financing in connection with the transaction.
Broadcom expects that the transaction would be completed within 12 months, following the signing of a definitive agreement.