Qualcomm spurns buyout bid of $135B by Broadcom

Qualcomm Inc. rejected Broadcom Ltd.’s $135 billion buyout bid, kicking off what analysts see as possibly the largest technology takeover battle in history.

The San Diego-based company recommended that shareholders spurn the deal, saying it’s an opportunistic move by Broadcom to buy the wireless-chip maker on the cheap. Qualcomm also said the transaction may face regulatory scrutiny that would cast doubt on its completion.

The rebuff ratchets up pressure on Broadcom to sweeten its offer, or embark

on a proxy battle, which carries its own risk of rejection by shareholders. For now, Broadcom said it remains “fully committed” to going ahead with the purchase.

“It is the Board’s unanimous belief that Broadcom’s proposal significantly undervalues Qualcomm relative to the company’s leadership position in mobile technology and our future growth prospects,” Paul Jacobs, executive chairman and chairman of the board of Qualcomm, said in a statement.

Broadcom Chief Executive Officer Hock Tan on Nov. 6 offered $70 a share in cash and stock for Qualcomm, seeking to build a powerhouse that leads the market for wireless chips in devices like Apple Inc. iphones. Even before Qualcomm’s response, Tan and his advisers were preparing to wage a proxy battle in which they appeal directly to Qualcomm investors.

Tan said he’s pleased with the reaction he’s already received from Qualcomm shareholders and customers regarding his proposal and would prefer to keep the negotiations friendly.

Qualcomm stocks ended trading Monday up $1.92 to $66.49.

“We have received positive feedback from key customers about this combination,” he said in a statement after Qualcomm’s rejection. “We continue to believe our proposal represents the most attractive, value-enhancing alternative available to Qualcomm stockholders and we are encouraged by their reaction. “

Buying Qualcomm would reshape the chipmaking industry, transforming Broadcom into the third-largest semiconductor maker, behind Intel Corp. and Samsung Electronics Co. The combined business would instantly become the default provider of a set of components needed to build each of the more than a billion smartphones sold every year. The deal would dwarf Dell Inc.’s $67 billion acquisition of EMC in 2015 — then the biggest in the technology industry.

“Qualcomm shareholders are likely to hold out for more, but we believe something in the $80-ish range is likely enough to bring most of them around,” Stacy Rasgon, an analyst at Sanford C. Bernstein wrote in a note published over the weekend. Broadcom is unlikely to walk away given that there is significant headroom to find a deal acceptable to Qualcomm shareholders, he added.

Tan, who has built Broadcom through a series of transactions that has helped reshape the $300 billion semiconductor industry, has previously been able to pull off deals with friendly approaches. Acquiring Qualcomm is further complicated by his target’s own push to close a more than $40 billion purchase of NXP Semiconductors NV. That purchase is being held up by regulatory approval. Tan said his offer for Qualcomm stands with or without Qualcomm’s acquisition of NXP.

For now, Qualcomm’s board is sticking with its management team, led by Chief Executive Officer Steve Mollenkopf.

“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,” Tom Horton, the company’s presiding director, said in the statement. “We are highly confident that the strategy Steve and his team are executing on provides far superior value to Qualcomm shareholders than the proposed offer.”

Broadcom is not Qualcomm’s only headache. The company, based in San Diego, is also brawling with Apple, a major client, over royalties that it collects on mobile gadgets. Apple could weigh in on Broadcom’s bid, analysts said, and might prefer that Qualcomm remain independent.

“No customer wants to see a supplier have that much power,” said Romit Shah, a senior equity analyst at Nomura Instinet. “Broadcom has to convince those companies that they stand to benefit.”