Broad­com of­fers $103B in tech union

Deal with Qual­comm could have ef­fect on smart­phone in­dus­try

USA TODAY US Edition - - MONEY - Nathan Bomey and Mike Snider

Broad­com is pitch­ing a deal to ac­quire Qual­comm for more than $103 bil­lion in a com­bi­na­tion of two semi­con­duc­tor gi­ants that are crucial to the speed, func­tion­al­ity and cost of smart­phones.

The deal, which in­cludes debt Broad­com would as­sume, would be the largest tech­nol­ogy ac­qui­si­tion, ac­cord­ing to Dealogic. The com­bined com­pany would cre­ate a global tech jug­ger­naut with about $51 bil­lion in an­nual rev­enue and ma­jor cus­tomers such as Ap­ple.

Broad­com publi­cized its pro­posed ac­qui­si­tion in a let­ter to Qual­comm sent to in­vestors and the me­dia Mon­day morn­ing.

It was not im­me­di­ately clear whether Qual­comm planned to en­gage Broad­com in dis­cus­sions or fight the pro­posal.

Broad­com of­fered to pay $70 per share for Qual­comm — $60 in cash and

$10 in stock. Qual­comm (QCOM) shares closed up 1.8% Mon­day at $62.90. Shares rose more than 12% Fri­day after news re­ports de­tailed Broad­com’s po­ten­tial bid.

Broad­com (AVGO) shares ended up

0.5% at $274.87. Broad­com said it would main­tain its of­fer, re­gard­less of the out­come of Qual­comm’s ef­fort to ac­quire NXP Semi­con­duc­tors. The San Diego­head­quar­tered Qual­comm made its $38 bil­lion bid in Oc­to­ber 2016 for Dutch­based NXP, a ma­jor provider of global au­to­mo­tive semi­con­duc­tor sales.

“This com­ple­men­tary trans­ac­tion will po­si­tion the com­bined com­pany as a global com­mu­ni­ca­tions leader with an im­pres­sive port­fo­lio of tech­nolo­gies and prod­ucts,” Broad­com CEO Hock Tan said in a state­ment.

Qual­comm’s board of di­rec­tors will as­sess the bid, the com­pany said in a news re­lease Mon­day, “to pur­sue the course of ac­tion that is in the best in­ter­ests of Qual­comm share­hold­ers.”

A merger of Broad­com, which spe­cial­izes in wired com­mu­ni­ca­tion tech­nol­ogy, with Qual­comm, a wire­less telecom­mu­ni­ca­tion gi­ant, “would make strate­gic sense and would be highly ac­cre­tive, bring­ing two com­mu­ni­ca­tions pow­er­houses to­gether ahead of the 5G tech­nol­ogy cy­cle,” Christo­pher Rol­land, an an­a­lyst with Susque­hanna Fi­nan­cial Group, said in a note to in­vestors.

5G is the next gen­er­a­tion of mo­bile tech­nol­ogy, promis­ing blis­ter­ing down­load speeds for con­sumers. Their ap­petite for more band­width has spurred a race in the telecom­mu­ni­ca­tion in­dus­try to build the net­works and in­fra­struc­ture — in­clud­ing chips — to sup­port it.

In an event at the White House, Broad­com CEO Tan said Thurs­day that the com­pany would move its head­quar­ters to Delaware. Broad­com has twin cor­po­rate head­quar­ters in San Jose and Sin­ga­pore. Last year, Sin­ga­pore-based chip­maker Avago Tech­nolo­gies’ took over Broad­com.

Broad­com’s move would make it more likely to close a $5.5 bil­lion bid it made last year for data cen­ter-con­nec­tiv­ity com­pany Bro­cade, as well as the Qual­comm deal.

Qual­comm de­vel­ops CDMA com­mu­ni­ca­tion tech­nolo­gies used by smart­phones on net­works by Ver­i­zon, Sprint and other car­ri­ers. Had Broad­com pro­posed this bid and re­mained co-head­quar­tered over­seas “we don’t think the U.S. gov­ern­ment would al­low im­por­tant tech­nolo­gies to leave to a Sin­ga­pore- based en­tity,” Rol­land said.

This merger has sig­nif­i­cant reg­u­la­tory hur­dles be­cause “the com­bined en­tity would dom­i­nate the high-end Wi-Fi mar­ket,” he said.

Broad­com and Qual­comm sup­plied parts for Ap­ple’s most re­cent iPhones, in­clud­ing the iPhone X. Qual­comm and Ap­ple are en­gaged in a dis­pute over how much Ap­ple pays in li­cens­ing fees to Qual­comm. Ap­ple sued Qual­comm in Jan­uary, and Qual­comm sought in July to ban the im­port of iPhones to the USA, cit­ing in­fringe­ment of its patents.

Qual­comm may re­ject this of­fer, CFRA Re­search an­a­lyst An­gelo Zino said in a note to in­vestors Mon­day.

“We would not be sur­prised if it re­jects the of­fer,” he said, “as we think shares have largely un­der­per­formed due to le­gal is­sues and (the) NXP Semi­con­duc­tor deal con­cerns when fun­da­men­tals are im­prov­ing.”

It’s un­clear whether Qual­comm will con­sider the ac­qui­si­tion pro­posal or fight it. JUSTIN SUL­LI­VAN/GETTY IM­AGES

Broad­com says the trans­ac­tion could make the com­pany a global com­mu­ni­ca­tions leader. AN­GEL NAVARRETE/BLOOMBERG

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