It’s official: Broadcom has made an unsolicited offer to buy Qualcomm for $130 billion, confirming rumors from last week.
If the deal goes through – and that’s a big if – it would be the largest acquisition of a technology company in history. It would also bring more consolidation in a sector that has seen a flurry of mergers and acquisitions over the last three years. Qualcomm itself is in the process of acquiring control of NXP Semiconductors for more than $38 billion in cash. Broadcom has indicated that it’s willing to complete that deal.
$130 billion might not be enough for what is essentially a hostile takeover
Broadcom, in its current incarnation, is the result of the 2016 acquisition of Broadcom Corporation by Singapore-based Avago Technologies. The company, which has a major presence in Silicon Valley but is headquartered in Singapore, recently announced it would move its fiscal domicile to the US.
Broadcom offered Qualcomm stockholders $70 per share, including $60 per share in cash and $10 per share in stock. Broadcom also offered to cover $25 billion of Qualcomm’s debt. This brings the offer to about $130 billion, which is a 28 percent premium over Qualcomm’s stock price before news broke of the acquisition.
Still, it might not be enough for what is essentially a hostile takeover. Sources told CNBC that Qualcomm is likely to indicate that Broadcom’s offer is “far below what it would expect in a takeover.” Qualcomm will also express concern over the possibility that the merger would face regulatory opposition.
Despite the resistance, Broadcom seems determined to take advantage of Qualcomm’s current relative weakness. The San Diego-based chip maker is facing multiple antitrust investigations that are likely to result in billions in fines, and is in open conflict with one of its biggest customers, Apple.
Buying Qualcomm makes a lot of sense for Broadcom, which is already a dominant player in the Wi-Fi chip market. In addition to its well-known Snapdragon chips, which power most Android smartphones, Qualcomm is a big supplier of cellular modems and other connectivity chips. But the bulk of Qualcomm’s revenue actually comes from intellectual property licensing deals – thanks to its patents, mostly related to LTE, Qualcomm can demand a fee for virtually every smartphone sold. It’s a huge cash cow – albeit a controversial one – that Broadcom surely wants for itself.
Even if Broadcom manages to convince enough Qualcomm shareholders to accept its takeover offer, the deal still depends on regulatory approval. Considering the size of the two players and their complimentary businesses, the deal will go under close scrutiny, not only in the US, but also in Europe and Asia.