Qualcomm investors want at least US$10 more a share from Broadcom

SAN FRANCISCO: Qualcomm Inc investors want at least US$10 (RM41.40) more than the US$70-ashare Broadcom Ltd is offering. If history is any guide, they might get partway there.

“We would be very interested in evaluating an offer that begins with an 8,” said Daniel O’Keefe, a fund manager of the US$3.1bil Artisan Global Value Fund, which owns Qualcomm stock. The board “should urge Broadcom to come back with a higher bid”.

Qualcomm’s board rejected Broadcom’s US$105bil (RM435bil) acquisition offer Nov 13, saying it was too low. Broadcom, which hasn’t yet improved its proposal, said it remains “fully committed” to the purchase and has received positive feedback from investors and customers. For now shareholders seem to be siding with Qualcomm. But Broadcom chief executive officer Tan Hock Eng is a tough negotiator and Qualcomm has big problems.

Tan has been the leading actor in a wave of deals that have shaken up the US$300bil chip industry over the last two years. He’s put together a string of transactions that have more than doubled the size of his company and were applauded by investors who have bid up Broadcom’s stock. Part of what they like is Tan’s ability to cut a deal on his terms.

In his three largest purchases – for LSI Corp, Broadcom Corp and Brocade Communications Systems Inc – Tan hasn’t paid more than 6.8% over his opening offer, according to regulatory filings. When LSI chief executive officer Abhi Talwalkar asked Tan for an increase of 10 cents a share on his US$11.15 offer in 2013 he was told that the bid was final. Talwalkar’s board capitulated to Tan’s price.

A bump of 6.8% would take Broadcom’s bid up to US$74.76, still below what the company is worth, according to several investors.

“We certainly expect another round,” said David Rolfe, chief investment officer at Wedgewood Partners Inc, which oversees about US$5.2bil. “It has got to be at least in the US$80 handle to get enough shareholders.”

While investors may not like Broadcom’s opening salvo, Qualcomm’s multiple challenges – a legal battle with Apple Inc and regulatory actions around the world that threaten its lucrative licensing business – have tried their patience and undermined their confidence in the company’s future.

Broadcom, whose offer was partially in its own stock, was up 47%. Since the bid, Qualcomm has rallied but is still about 5% below the offer price. — Bloomberg