(Bloomberg) -- Qualcomm Inc. said it's willing to engage in negotiations with Broadcom Ltd., indicating the company is more open to being bought. Its hostile suitor dismissed those comments as a disingenuous attempt to avoid concluding a deal.
Following a Friday meeting between executives of both companies, Qualcomm Chairman Paul Jacobs sent a letter to Broadcom Chief Executive Officer Hock Tan, published Monday, inviting him to enter into a nondisclosure agreement and conduct due-diligence talks in order to come to an agreement over price.
Broadcom shot back Monday that the offer of talks is โfeigned engagementโ aimed at delaying a March 6 Qualcomm shareholder meeting that may overturn resistance toย its $117 billion bid. Investors are scheduled to vote on six Broadcom nominees, potentially giving Tan's company a majority of Qualcomm's board. The meeting will be held as scheduled, Qualcomm said in a subsequent statement.
โThe ball is in Broadcom's court to let us know whether it is willing to engage with us,โ the San Diego-based company said. โQualcomm has repeatedly attempted to engage with Broadcom on issues including price, including at meetings on February 14 and February 23. In each of those meetings, Broadcom has refused to engage on price.โ
Qualcomm said Broadcom repeated its $79-a-share offer was โbest and finalโ at the Friday meeting. Broadcom countered on Monday that its target is delaying real negotiations on price.
With the two companies still fighting, the shareholder vote is an increasingly important event that may break the stalemate over the potential transaction. The aggressor needs approval of all six nominees to take control of a board that has so far shunned its approaches. Broadcom's proposal is in cash and stock,ย 25 percent above Qualcomm's Friday closing share price of $63.32. Qualcomm shares rallied 5.8 percent to $66.98 at Monday's close.
Earlier, Broadcom cast doubt on whether the shareholder meeting would even occur.
โQualcomm refused to confirm that it will hold its previously scheduled stockholder vote on March 6,โ Broadcom said Monday in a statement. โBroadcom stands ready to negotiate its proposal on a comprehensive basis on terms that are realistic for both parties and their respective stockholders, but has not yet found a counterparty prepared to do the same.โ
Shareholders are mulling not only the largest deal in tech history but one of the most complex. The two companies haven't previously come close to compromise, preferring to issue competing promises and counter claims. Qualcomm is also trying to force through its own $43 billion acquisition of NXP Semiconductors NV at a raised price.
โI don't think anyone's really that happy based on the valuation but they're ready to throw the towel in,โ said Daniel Morgan, a fund manager for Synovus Trust Co., which has sold most of its Qualcomm holdings. โThere's an exhaustion on behalf of a lot of loyal Qualcomm shareholders.โ
More Than Price
In the letter published Monday, Jacobs continued to press that Broadcom's original $82 per share bid materially undervalues Qualcomm, and also proposed a termination fee of 9 percent of the deal's enterprise value. Broadcom has already offered an $8 billion breakup fee.
Price might not be the only hurdle left though. Qualcomm sent back an amended version of the merger agreement created by Broadcom that asked for a commitment to spin off several key businesses if that's what is required to get the deal through regulatory approval. Excluding some of those units from the combined company โwould seem like a nonstarter,'' Stacy Rasgon, an analyst at Sanford C. Bernstein, wrote in a note to investors, because those businesses are the primary reason why Broadcom wants Qualcomm.
Before Broadcom's bid, Qualcomm shares had languished behind peers for half a decade, making it a target. The main problem has been its lucrative patent licensing business, which has provoked regulatory scrutiny, fines and a bitter legal dispute with Apple Inc. Qualcomm argues it will win in court over time, but can't say precisely when.
โHow do you model this? Markets hate that kind of uncertainty,โ said Brian Barish, chief investment officer of Cambiar Investors. He's willing to give Qualcomm another chance to improve its performance but has little patience for the company's lack of focus on investor returns to date.
Qualcomm's leaders have been living in an โivory tower,โ Barish said. With more imagination and flexibility, they could have found a way to structure the business so the licensing unit wouldn't upset customers like Apple. Still, he said Broadcom's current offer is an attempt to โstealโ Qualcomm and he can't support it.
One major Qualcomm shareholder told Bloomberg they're planning to support Broadcom because they think Broadcom's Tan will deliver better shareholder returns than Qualcomm's current management. They asked not to be identified talking about the topic before the vote.
Other investors contacted by Bloomberg said they haven't yet decided which way they'll vote. They agree that the bid is low and worry the transaction will get held up by antitrust regulators.
Regulatory Issuesย
The 25 percent gap between Broadcom's bid and Qualcomm's share price highlights these regulatory doubts. Even if investors vote on March 6 to give Broadcom majority control of Qualcomm's board, they're still a long way from getting their cash and new stock. A final deal would likely be agreed upon soon after, but some shareholders are concerned antitrust reviews will drag on for a year or more. That means something could still go wrong, sending Qualcomm stock back down to its pre-offer price.
โI am going back and forth,โ said Jerry Dodson, chief executive officer of Parnassus Investments, which owns 8.3 million Qualcomm shares. A fair price would be at least $80, he said. Dodson is concerned about antitrust scrutiny and gives the deal a 50 percent chance of ultimately happening.
Some investors are hoping Tan blinks and raises his bid again. The executive has led consolidation of the chip industry over the last five years, but he rarely overpays.
โHock's a disciplined buyer. He's coming in at an attractive time to be a buyer,โ Peter Karazeris, an analyst at Thrivent Financial for Lutherans, which has $116 billion in assets including Qualcomm stock. โThe question just becomes do I think there's another path to gaining value?โ Thrivent hasn't yet decided which way it will vote, he added.
--With assistance from Charles Stein
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net.
To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack, Alistair Barr
ยฉ2018 Bloomberg L.P.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories โ On NDTV Profit.
