Wednesday 18 September 2019

Broadcom's Qualcomm bid could reshape mobile chip industry

Supantha Mukherjee and Greg Roumeliotis

Chipmaker Broadcom has made an unsolicited $103bn bid for Qualcomm, setting the stage for a takeover battle that could reshape the industry at the heart of mobile phone hardware.

Qualcomm said it would review the proposal but the San Diego-based company is inclined to reject the bid as too low and fraught with risk that regulators may reject it or take too long to approve it, people familiar with the matter told Reuters.

Broadcom CEO Hock Tan, who turned a small chipmaker into a $100bn company based in Singapore and the United States, told Reuters he would not rule out a proxy fight to convince shareholders to replace the board and accept the offer.

"We are well advised and know what our options are, and we have not eliminated any of those options," said Mr Tan, who has pulled off a string of deals over the past decade. "We have a very strong desire to work with Qualcomm to reach a mutually beneficial deal."

A combined Broadcom-Qualcomm would become the dominant supplier of chips used in the 1.5 billion or so smartphones expected to be sold around the world this year. It would raise the stakes for Intel Corp, which has been diversifying from its stronghold in computers into smartphone technology by supplying modem chips to Apple.

Qualcomm shareholders, who have watched their investment sour over the past year in the face of a patent dispute with Apple, would get $60 in cash and $10 per share in Broadcom stock in a deal, according to Broadcom's proposal. Including debt, the transaction is worth $130bn.

"Now it's a game of high-stakes poker for both sides," said GBH Insight analyst Daniel Ives, who believes bullish investors were hoping for $75 to $80 a share.

The offer represents a premium of 27.6pc to Qualcomm's closing price of $54.84 on Thursday.

Shares of Qualcomm, whose chips allow phones to connect to wireless data networks, traded above $70 as recently as December 2016 and topped $80 in 2014. They rose 1.1pc to $62.52, suggesting scepticism a deal would happen.

Any deal struck between the two companies would face intense regulatory scrutiny, especially in China, which is home to expanding rivals.

Chinese ambitions to buy US chipmakers have been thwarted by US regulators.

Qualcomm sells modem chips that allow phones to send data as well as communications chips for automobiles that handle "infotainment" systems and wireless electric vehicle charging.

Qualcomm provides chips to carrier networks to deliver broadband and mobile data and is also in the process of closing a $38bn bid for automotive chipmaker NXP Semiconductors NV that it made last year.

Broadcom, Qualcomm and NXP together would have control over modems, Wi-Fi, GPS and near-field communications chips, a strong position that could concern customers such as Apple and Samsung because of the bargaining power such a combined company could have to raise prices.

However, a combined company would also likely have a lower cost base and the flexibility to cut prices.

Herbert Hovenkamp, who teaches antitrust at the University of Pennsylvania Law School, said that US regulators would try to ensure the deal would not lead to higher chip prices.

"Based on what I've seen, it seems unlikely to me that there's a basis for a challenge (to stop the deal)," he said. (Reuters)

Irish Independent

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