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Broadcom’s $130bn attempt to buy Qualcomm moved a step closer to open hostilities on Monday morning, as the two chipmakers dug in for a bitter fight over what could be the tech industry’s biggest ever deal.
Qualcomm’s board on Monday unanimously rejected Broadcom’s $70-a-share offer, first made a week ago, saying it “dramatically undervalues” the San Diego-based company and presented “significant regulatory uncertainty”.
In response, Broadcom maintained that it was “fully committed to pursuing its acquisition”. The exchange set the stage for what is likely to become a proxy fight in the coming weeks, where Broadcom will try to oust Qualcomm board members and replace them with new directors more amenable to a deal.
Broadcom argues its offer of $60 in cash and $10 in shares represents an “attractive” 33 per cent premium to the company’s average share price of the past month. As part of the deal, Broadcom would also assume about $25bn in net debt. Qualcomm points to the fact that its shares were trading close to $70 as recently as December.
Qualcomm’s stock rose almost 2 per cent after both statements were issued but, at $65.65, remains below Broadcom’s offer price, suggesting investors remain sceptical about whether a deal can be completed.
Tom Horton, presiding director of Qualcomm, said: “After a comprehensive review, conducted in consultation with our financial and legal advisers, the board has concluded that Broadcom’s proposal dramatically undervalues Qualcomm and comes with significant regulatory uncertainty. We are highly confident that the strategy Steve [Mollenkopf, chief executive] and his team are executing on provides far superior value to Qualcomm shareholders than the proposed offer.”
Mr Mollenkopf added that he was “confident in our ability to create significant additional value for our stockholders” as it moves from mobile devices into automotive chips and the “internet of things”.
Several large Qualcomm shareholders have told the company that they back its position, people familiar with the matter say.
Qualcomm’s share price has been battered in recent months by a widening legal fight with Apple, one of its largest customers. Broadcom will be hoping to capitalise on shareholder uncertainty ahead of what could be years of courtroom battles.
Hock Tan, Broadcom chief executive, said on Monday that he had received “positive feedback from key customers” and was “encouraged” by shareholder reaction to the deal.
“We continue to believe our proposal represents the most attractive, value-enhancing alternative available to Qualcomm stockholders,” he said. “Many have expressed to us their desire that Qualcomm meet with us to discuss our proposal. It remains our strong preference to engage cooperatively with Qualcomm’s board of directors and management team.”
At the same time, people familiar with Broadcom’s plans say that it is preparing to force a deal if Qualcomm continues to shut it out.
Broadcom could seek to put its own appointees on the board of Qualcomm by winning over existing shareholders in a proxy battle ahead of Qualcomm’s annual shareholder meeting in March next year. Broadcom has until early December to nominate directors who would be open to its bid.
“In a proxy fight we believe the debate would be — can [Qualcomm’s] management that has overseen severe underperformance and been unable to resolve key disputes turn the ship or do shareholders put faith in Hock and take the exit?” said Amit Daryanani, analyst at RBC Capital Markets. “At the right price ($80?) we think investors would choose the [Broadcom] option.”
This post originally appeared on Financial Times