Broadcom offers $105 billion for Qualcomm

Bloomberg

Broadcom Ltd. offered about $105 billion for Qualcomm Inc., kicking off an ambitious attempt at the largest technology takeover ever in a deal that would rock the electronics industry.
Broadcom made an offer of $70 a share in cash and stock for Qualcomm, a 28 percent premium for the world’s largest maker of mobile phone chips as of the stock’s closing price, before Bloomberg reported talks of a deal. The proposed transaction is valued at approximately $130 billion on a pro forma basis, including $25 billion of net debt.
Buying Qualcomm would make Broadcom the third-largest chipmaker, 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.
“This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products,” Hock Tan, president and chief executive officer of Broadcom, said in a statement on Monday. “We would not make this offer if we were not confident that our common global customers would embrace the proposed combination.’’
Qualcomm is preparing to fend off the unsolicited offer, arguing it undervalues the company, people familiar with the plans have said. Qualcomm will argue that the proposal is an opportunistic move to buy the chipmaker on the cheap, the people said, and it will likely recommend that shareholders reject it. In a statement on Monday, Qualcomm said it would “assess the proposal in order to pursue the course of action that is in the best interests of Qualcomm shareholders.”
The bid values Qualcomm at about 21.2 times earnings before interest, tax, depreciation and amortisation, compared with a median multiple of 22.5 for similar deals in the industry, according to data compiled by Bloomberg.
Tan is making a play for Qualcomm as the once-unstoppable chipmaker limps through a rare moment of weakness. Qualcomm’s most profitable unit, which licenses mobile phone technology, is under assault from regulatory actions around the world and a legal challenge from
Apple Inc. The lawsuit may prompt Apple to stop buying Qualcomm chips for use in the iPhone and other products, which would deal a major blow to a unit that drives the bulk of Qualcomm’s revenue. Meanwhile, Broadcom counts Apple among its largest customers.
Qualcomm shares rose 3.9 percent in premarket trading on Monday in New York. “The deal makes a lot of sense,” Romit Shah, an analyst at Instinet, said. “Broadcom would be getting $30 billion in revenue, and it would be very strategic. Both companies have a significant presence in smartphones.”
Broadcom’s Tan has played a pivotal role in a wave of consolidation engulfing the $300 billion semiconductor industry over the last three years. He took a former Hewlett-Packard division and built it into one of the largest chipmakers through a string of purchases.
If Broadcom can pull off a deal, it could help smooth things over with Qualcomm’s biggest adversary.