The Qualcomm-Broadcom Soap Opera

The back and forth between Qualcomm and Broadcom can only be described as a soap opera. Both companies are using PR to go back and forth and talk to each other through public channels. This is largely for the shareholders, and the media to a degree, in order to help shape public sentiment as well as be on the record. I think it would be helpful to briefly look at a few key pieces of the timeline in this saga.

November 6th, 2017:

Broadcom makes an UNSOLICITED bid for Qualcomm at $70 per share.

I bolded the emphasis there because it is worth remembering there had been no prior discussions between the companies and Broadcom’s offer came out of the blue. The $70 per share offer, according to an official Qualcomm statement, was so low it didn’t merit engagement.

Nov. 13, 2017

Qualcomm rejects Broadcom’s $103 billion takeover bid, saying the offer undervalued the company and would face regulatory hurdles.

By now it should be clear Qualcomm wants nothing to do with Broadcom. I will go into details why after we finish looking at the timeline of key events.

Dec. 4, 2017

Broadcom makes its first formal move toward a hostile bid to take over Qualcomm by nominating 11 directors to its rival’s board.

Dec. 22, 2017

Qualcomm rejects Broadcom and private-equity firm Silver Lake Partners’ 11 director nominees, setting the stage for a proxy battle.

Feb. 5, 2018

Broadcom raises its offer for Qualcomm to $82 per share from $70 per share, calling the bid its “best and final offer”. The revised offer is contingent on either Qualcomm acquiring NXP Semiconductors for $38 billion or the NXP deal being terminated.

Feb. 8, 2018

Qualcomm rejects Broadcom’s revised buyout offer of $121 bln, but proposes meeting to address the bid’s“serious deficiencies in value and certainty”.

Feb. 14, 2018

Representatives of Broadcom and Qualcomm meet for the first time to discuss a potential combination; Qualcomm later calls the meeting “constructive”.

Feb. 20, 2018

Qualcomm deals a blow to Broadcom’s raised bid by increasing its offer for NXP Semiconductors to $127.50 per share in cash from $110 per share.

Ok, now things are getting a bit more interesting. The two companies got together to talk. I was a bit shocked when this happened because I believe deep in my bones Qualcomm wants nothing to do with Broadcom. Perhaps Qualcomm’s board and the executive committee felt they needed to take this meeting as a show of good faith as well as present the public facing view that they are willing to talk with Broadcom. Especially in light of their increased bid for NXP which can only be interpreted as a hostile way to get Broadcom to back off, which in turn needed to be justified to shareholders.

In a recent statement from Qualcomm, in advance of their annual shareholder meeting where a vote will be taken regarding the Broadcom acquisition/merger bid, the following statement was made:

Since evaluating and subsequently rejecting the $82 per share offer on February 8, Qualcomm has repeatedly and genuinely attempted to engage with Broadcom on issues including price, regulatory and other closing certainties, including most recently at meetings on February 14 and February 23. In each of those meetings, Broadcom refused to engage in good faith. It instead reiterated its “best and final” stance which it established prior to our first meeting, despite our attempts to find a path to a deal that makes sense for Qualcomm stockholders. Broadcom’s refusal to outline its proposal and the future direction of Qualcomm’s licensing business also raises significant issues from a value and regulatory perspective.

Qualcomm is trying to balance the fine line of making it clear to shareholders, and the general public, that it is not in their best interests to agree to the terms of Broadcom’s proposals. Qualcomm needs to make sure their wording and tactics don’t raise any issues or potential lawsuits from activist investors who would be willing to jeopardize Qualcomm’s future just to make some quick money now. In the end, this is what I think the dog and pony show is about.

Qualcomm has no interest, never has, and never will, to let Broadcom takeover their company. If you remember your history here, Broadcom isn’t actually Broadcom it is Avago who purchased Broadcom in 2015 for $37 billion dollars. I had done quite a bit with Broadcom up to that point and had close contacts there even after the acquisition. Broadcom, like Qualcomm, was an aggressive patent pursuer and prided themselves on their culture of innovation. Everyone I know left because of the culture clash Avago brought to the scene where everything was about the bottom line and management was very short sided when it came to R&D. Should Broadcom get their way and acquire Qualcomm the same thing would happen, and it would be the end of Qualcomm as we know it.

A review, of the timeline, in light of the Qualcomm sharholder vote regarding the board of directors upcoming, reveals a clever set of maneuvers and carefully crafted public wording by Qualcomm. I think this line from Qualcomm’s latest press release from the board sums up their stance:

All three items – price, closing certainty and the licensing business – are critical to the Board’s evaluation of Broadcom’s proposal, and without a meaningful discussion or an agreement on these items, the Qualcomm Board believes it is not in the best interest of Qualcomm’s stockholders to elect Broadcom’s nominees. The Qualcomm Board of Directors remains ready to engage with Broadcom on these issues both before and after the March 6 stockholder meeting.

Qualcomm is leading with price, closing certainty, and licensing business. But what really is at stake is a culture of innovation the global tech industry depends on. That is much harder to argue and plead with shareholders within this vote which is why they are leading with the tangible items. I truly hope Qualcomm investors do the right thing and vote to re-elect all 11 current board members.