Broadcom has made a shock bid to buy rival Qualcomm for $130 billion, with the chip maker making the bold unsolicited move in a play to increase its share in the wireless market.
In what could shape up to be one for the biggest takeover battles ever seen, Qualcomm has already reacted to the offer and has said that it would review the proposal and act in the best interests of its shareholders.
The move by Broadcom is an astute one, with Qualcomm in a vulnerable position thanks to its shares being held in a legal dispute with Apple. Added to this are concerns that last year’s $38 billion offer for NXP Semiconductors may have to be increased by the company.
The all-cash-and-shares offer on the table would give Qualcomm shareholders $70 per share, with $60 in cash and $10 in stocks.
“Broadcom’s proposal is compelling for stockholders and stakeholders in both companies. Our proposal provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company,” said Hock Tan, President and Chief Executive Officer of Broadcom.
“This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products. We would not make this offer if we were not confident that our common global customers would embrace the proposed combination. 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.”
If the takeover were to go through, the combined entity would emerge as one of the biggest makers of wireless comms chips for mobile phones. As the likes of Intel are getting increasingly involved in this area, diversifying into smartphones and mobile devices, the takeover is a smart and confident move by Broadcom to grab the lions share of the wireless market. With so much for the taking, it comes as no surprise that Broadcom want the deal done and dusted as soon as possible, with the CFO expecting proceedings to move quickly thanks to the complementary nature of both companies.
“The Broadcom business continues to perform very well. Broadcom has completed five major acquisitions since 2013, and has a proven track record of rapidly deleveraging and successfully integrating companies to create value for our stockholders, employees and customers,” said Thomas Krause, Broadcom Chief Financial Officer.
“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.”
However, experts believe that the takeover will not go as smoothly as expected, with Geoff Blaber from CCS Insight predicting a takeover “fraught with challenges and in its current form is highly unlikely to proceed.”
“Qualcomm is likely to resist primarily on the basis that it undervalues the company and its growth opportunity in IoT. It is an unwelcome distraction for Qualcomm as it seeks to close the NXP acquisition, negotiate with regulators and work through the ongoing dispute with Apple,” said Blaber
“Other central factors are the complexity of integration, particularly large proposed acquisitions for both companies that are still to compete (NXP and Brocade). Similarly, regulatory scrutiny is likely to be substantial and would add up to make this a highly risky transaction.”