{"id":4708,"date":"2017-11-06T10:32:11","date_gmt":"2017-11-06T18:32:11","guid":{"rendered":"https:\/\/lapost.us\/?p=4708"},"modified":"2017-11-06T10:38:42","modified_gmt":"2017-11-06T18:38:42","slug":"the-largest-ever-it-industry-deal-broadcom-a-105-billion-takeover-bid-for-qualcomm","status":"publish","type":"post","link":"https:\/\/lapost.us\/?p=4708","title":{"rendered":"The Largest \u2013Ever IT industry deal: Broadcom a $105 billion takeover bid for Qualcomm"},"content":{"rendered":"

Broadcom Ltd.<\/a> offered about $105 billion for Qualcomm Inc.<\/a>, kicking off an ambitious attempt at the largest technology takeover ever in a deal that would rock the electronics industry.<\/p>\n

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Broadcom made an offer of $70 a share in cash and stock for Qualcomm, the world\u2019s largest maker of mobile phone chips. That\u2019s a 28 percent premium over the stock\u2019s closing price on Nov. 2, before Bloomberg first reported talks<\/a> of a deal. The proposed transaction is valued at approximately $130 billion on a pro forma basis, including $25 billion of net debt.<\/p>\n

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Buying Qualcomm would make Broadcom the third-largest chipmaker, behind Intel Corp. and Samsung Electronics Co.<\/a> 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.<\/a>\u2019s $67 billion acquisition of EMC in 2015 — then the biggest<\/a> in the technology industry.<\/p>\n

Bloomberg Gadfly columnist Brooke Sutherland and Christopher Rolland of Susquehanna Semiconductor examine the offer.<\/span><\/p>\n

\u201cThe combination of the two companies could generate strong synergies and create a dominant wireless business and overall powerful global semiconductor leader,\u201d said Mike Walkley, an analyst at Canaccord Genuity.<\/p>\n

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Possible Rebuff<\/h3>\n

Qualcomm is preparing to fend off<\/a> 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<\/a> Monday, Qualcomm said it would \u201cassess the proposal in order to pursue the course of action that is in the best interests of Qualcomm shareholders.\u201d<\/p>\n

Hock Tan, president and chief executive officer of Broadcom, is making a play for Qualcomm as the once-unstoppable chipmaker limps through a rare moment of weakness. Qualcomm\u2019s most profitable unit, which licenses mobile phone technology, is under assault from regulatory actions around the world and a legal challenge from Apple Inc.<\/a> 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\u2019s revenue. Meanwhile, Broadcom counts Apple among its largestcustomers<\/a>.<\/p>\n

The bid values Qualcomm at about 21.2 times earnings before interest, tax, depreciation and amortization, compared with a median multiple of 22.5 for similar deals in the industry, according to data compiled by Bloomberg.<\/p>\n

\u201cThe ball is now in Qualcomm\u2019s court, with management now under pressure to convince shareholders why current management will be better at driving value than Broadcom,\u201d\u00a0said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co., in a note to investors. \u201cWe expect a considerable amount of back and forth from here, but believe a floor will be put under the shares at least.\u201d<\/p>\n

Qualcomm shares rose 4 percent to $64.26 at 9:43 a.m. in New York Monday. The stock closed up 13 percent on Friday at $61.84, valuing the company at $91 billion. Broadcom rose 5.5 percent Friday for a market value of $112 billion. Its shares gained about 1 percent Monday to $276.75.<\/p>\n

Wave of Consolidation<\/h3>\n

Broadcom\u2019s 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<\/a>. Tan established the current iteration of Broadcom in 2016 when his Singaporean company Avago Technologies Ltd. acquired U.S.-based Broadcom Corp. for $37 billion.<\/p>\n

\u201cThis complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products,” Tan said in a statement Monday.\u00a0\u201cWe would not make this offer if we were not confident that our common global customers would embrace the proposed combination.\u2019\u2019<\/p>\n

Tan, who holds degrees in mechanical engineering from the Massachusetts Institute of Technology and an MBA from Harvard Business School, laid the foundation for future dealmaking last week. In a widely broadcastannouncement <\/a>Thursday with U.S. President Donald Trump in the Oval Office, Tan said he will move Broadcom\u2019s headquarters to the U.S.<\/p>\n

The move was largely symbolic: Broadcom already lists San Jose, California, as a corporate co-headquarters. But analysts said the domicile change would make it easier for Broadcom to launch deals from the U.S.\u00a0and complete its $5.9 billion takeover of Brocade Communications Systems Inc.<\/a>Announced last November, that transaction has been delayed at least three times by the Committee on Foreign Investment in the U.S., a panel that reviews the security risks of foreign acquisitions of American companies.<\/p>\n

\u201cThe decision is rooted in the company\u2019s strategy to pursue M&A and in the political reality that it has become more difficult for overseas-based companies to acquire U.S. ones,\u201d said\u00a0Mark Lipacis, an analyst at Jefferies & Co.<\/p>\n

Apple Dispute<\/h3>\n

If Broadcom can pull off a deal, it could help smooth things over with Qualcomm\u2019s biggest adversary. A change of management at Qualcomm might help resolve the dispute with Apple more quickly, according to Sanford C. Bernstein & Co. analyst Stacy Rasgon.<\/p>\n

At issue between the two companies are licensing fees the chipmaker charges for patents covering the basics of how mobile phone systems work. Apple contends Qualcomm is unfairly charging too much and illegally taking advantage of its market position in chips. To heighten pressure on Qualcomm, Apple has stopped paying the licensing fees and is planning to design devices that exclude Qualcomm\u2019s chips, a person familiar with the situation has said.<\/p>\n