Insight Bite: Broadcom goes hostile – but can it win Qualcomm?

Broadcom’s $130 billion takeover offer for Qualcomm was always poised to become the deal of the year – but things are rapidly escalating. First Qualcomm rejected the bid, and now Broadcom has said it would replace the Qualcomm board in its entirety if successful.

Qualcomm said the bid undervalues the company. “No company in the industry is better positioned than Qualcomm in mobile, IoT, automotive, edge computing and networking and to lead the transition to 5G,” Tom Horton, Qualcomm’s Presiding Director, said in a statement. But Qualcomm’s stock has been underperforming of late, amidst a spate of regulatory issues and litigation with its largest customer, Apple.

“No company in the industry is better positioned than Qualcomm in mobile, IoT, automotive, edge computing and networking and to lead the transition to 5G,” Tom Horton, Qualcomm’s Presiding Director

Hostile takeovers are tricky – 57% of hostile takeover approaches globally have failed, according to Dealogic. But if successful, the combined Broadcom-Qualcomm would own the market for semiconductor chips across the industry, from mobile phones to smart cars and homes, not to mention the potential benefits of significant cost cutting opportunities.

Chances of this deal going through are a coin toss at this point – the prospective suitor has not presented any plans as to how it would deal with the inevitable regulatory issues that would come up. Qualcomm is probably right to fight the offer, as the shares traded around the bid level only a year ago.

Broadcom’s plans to add heft to fight rising competition from China are potentially wise, but buying Qualcomm might be biting off more than it can chew. The debt of the combined outfit would be a staggering $100 billion, when including the cost of Broadcom’s planned merger with NXP Semiconductors – in light of the ongoing issues around regulation and litigation this might be destabilising.

There’s a lot of time for this to play out still – Qualcomm’s annual shareholder meeting isn’t until 6th March 2018, and Broadcom could make a lot happen until then. Our eyes are peeled.

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