Qualcomm rejects "the largest tech acquisition offer in the history;" $121 billion bid from Broadcom.
The rejected proposal is the second – a revised bid from the Singapore-based competing chipmaker; Broadcom. According to the information released by Qualcomm on February 8, the "unsolicited proposal" to buy its entire shares was "unanimously rejected." The $121 million bid from Broadcom seeks to acquire each share of Qualcomm at $82, offering $60 cash and $22 as stock. It is $12 higher than the previous bid for each share, which was turned down on November 13, 2017, by Qualcomm unanimously.
Why did Qualcomm reject such a huge bid?
Qualcomm believes its future contribution to wireless technology is underestimated; hence, it's being undervalued by Broadcom. "Your current proposal is inadequate as it materially undervalues Qualcomm. Your proposal ascribes no value to our accretive NXP acquisition, no value for the expected resolution of our current licensing disputes and no value for the significant opportunity in 5G. Your proposal is inferior relative to our prospects as an independent company and is significantly below both trading and transaction multiples in our sector," Qualcomm's Chairman of the Board, Paul E. Jacobs, writes in an open letter to Hock Tan, President and Chief Executive Officer of Broadcom.
Qualcomm is not in the best financial position despite its claim. Its shares dropped by 0.1% after it gained approval by EU to acquire NXP in January. Also, the giant chipmaker is still facing a $1.2 billion fine imposed by EU following a violation of chip patent countersuit against Qualcomm filed by Apple; one of its biggest customers. Following the rift between the two technology giants, Apple Inc. has opted to partner with Intel for network chips, forcing Qualcomm to lose a heavy percentage of its yearly sales. However, Qualcomm is expecting to be helped by leadership in Smartphones to expand into new areas like automobile chips, sever chips, and PC processors.
An additional statement from Qualcomm's open letter to Broadcom suggests that the company is proposing a meeting where new agreement may be reached in the form of more commitments. Broadcom is insisting that the proposed amount is final and the highest the company would offer to acquire Qualcomm shares. "We want to reiterate that $82 per Qualcomm share is our best and final offer," Tan writes. Broadcom opines to meet with Qualcomm this weekend "Friday, Saturday or Sunday" although Qualcomm wants a meeting with Glass Lewis and ISS involving the two companies to pull through before any further discussion on the acquisition proposal.
Broadcom's proposal to acquire a larger company is the most daring move by Tan has made after seeing through several deals that have promoted the company’s rank as one of the largest suppliers of semiconductors in the world. If the deal holds, Qualcomm would master its division for Smartphone modern-chip while serving as an example of "franchise" that will dominate semiconductors industry, according to him. Tan's accomplishments at Broadcom include a significant improvement in its share, from $18.29 in 2009 to its current $229.