Broadcom Issues ‘Best and Final Offer’ to Acquire Qualcomm, Values Qualcomm at $121 Billion

In early February, news reports indicated that Singapore-based semiconductor developer Broadcom (NASDAQ:AVGO) had increased its bid to purchase San Diego, CA-based semiconductor rival Qualcomm Incorporated (NASDAQ:QCOM). Broadcom’s latest bid increases the value of its proposed purchase agreement up from $70 in cash and stock per share up to $82 in cash and stock per share in a deal that would be valued at more than $121 billion.

Broadcom’s first takeover bid came last November, originally offering $60 in cash and $10 in Broadcom stock per Qualcomm share. This most recent Broadcom bid retains the $60 in cash per share while increasing the value of Broadcom stock offered up to $22 per share. As a Broadcom press release announcing the increased bid notes, this $82 per share total represents a 50 percent premium over the closing price of Qualcomm shares on November 2nd, 2017, the last trading day unaffected by media speculation of the potential Broadcom buyout. Qualcomm closed on Wednesday, February 7, 2018 at $65.04 per share.

Broadcom is calling the latest offer to purchase Qualcomm its “best and final offer” to complete what would reportedly be the largest tech acquisition in history. Broadcom’s letter to Qualcomm, published in its press release on the subject, notes that this offer will be terminated if Qualcomm either does not enter into a definitive agreement with Broadcom by the time of Qualcomm’s next board meeting on March 6th, or if that meeting ends without a slate of directors nominated by Broadcom being voted to Qualcomm’s board.

Along with the $82 per share purchase price, Broadcom’s offer would commit that company to other financial obligations to complete the acquisition, including a “ticking fee” that could increase the cash consideration payable to Qualcomm stockholders if the transaction isn’t consummated within one year of the two companies entering into a definitive agreement. If Broadcom cannot win regulatory approval for the acquisition, a significant consideration given the size of the offer, the company is also will to pay a significant reverse termination fee to Qualcomm. Broadcom also indicated that it would be willing to change the makeup of its own board of directors, adding that it was prepared to invite Qualcomm’s Executive Chairman Paul Jacobs to the Broadcom board along with one other current Qualcomm director.

Another condition upon which Broadcom’s takeover offer is predicated is the completion of Qualcomm’s bid to acquire Dutch semiconductor firm NXP Semiconductors (NASDAQ:NXPI) which Qualcomm offered to buy in October 2016 in a bid valuing NXP at $110 per share. For the Broadcom offer to stand, Qualcomm must either complete the NXP acquisition at the $100 per share value or terminate the transaction entirely. A news report from The Los Angeles Times indicates that activist shareholders at NXP have argued that Qualcomm should increase the value of the NXP bid to $135 per share.

Broadcom’s offer to buy Qualcomm also comes as Qualcomm is locked in litigation with consumer tech giant Apple since the beginning of 2017. Last April, Qualcomm filed a suit alleging tortious interference committed by Apple, including the inducement of regulatory action against Qualcomm in multiple jurisdictions around the world by mischaracterizing Qualcomm’s business model. Most recently, on February 5th, Apple filed an amended counterclaim against Qualcomm in the Southern District of California seeking declaratory relief on non-infringement of Qualcomm’s asserted patents, invalidity of Qualcomm’s patents and infringement of patents asserted by Apple for a damages award in an amount to be proven at trial. Qualcomm had first filed this particular suit last July, asserting non-standard essential patents (non-SEPs) to respond to Apple’s allegations in other suits that Qualcomm SEP licensing activities violated the company’s fair, reasonable and non-discriminatory (FRAND) licensing obligations.

On February 5th, Qualcomm issued a press release confirming that it had received the latest offer from Broadcom. In the news release, Qualcomm indicated that it would not comment on the proposal itself until its board of directors had completed a thorough review. Qualcomm did note that Broadcom’s bid from last November was unanimously rejected by Qualcomm’s board, which felt that the offer dramatically undervalued the company and came with significant regulatory uncertainty.