Broadcom has fired its board broadside. The chip maker is nominating 11 directors at Qualcomm, which has rejected Broadcom’s roughly $105 billion unsolicited offer. Only a brave shareholder would vote to replace an entire board solely to advance a not-yet-fully committed bid. But the move pressures Qualcomm to engage.
As Qualcomm notes, the bid from Broadcom is nonbinding. Although banks have expressed confidence in raising the funds and private equity outfit Silver Lake is injecting $5 billion, lenders aren’t yet actually on the hook. Even if they were, the deal would still leave Hock Tan, the acquisitive Broadcom chief executive, running a company saddled with huge debts. With $10 of the $70-a-share offer price coming in stock, that’s relevant to Qualcomm’s owners, too.
Broadcom promotes the qualifications of its nominee slate, which includes an ex-Nokia executive and the former chairman of Dialog Semiconductor. For its part, Qualcomm defends its own directors, noting the independence of nine of them and the relatively recent arrival of four.
Most independent directors would probably support holding discussions with a suitor when, as in this case, a roughly 28 percent premium is on the table. Qualcomm’s refusal to engage — even with, according to Broadcom, “many” shareholders wanting it do so — suggests its board thinks the timing is meaningfully disadvantageous.
That’s true. Qualcomm is still awaiting antitrust approvals for its acquisition of NXP Semiconductors more than a year after the $38 billion deal was struck. In addition, the company is waging a legal fight with Apple, among others, over royalty payments. Resolving either or both of these uncertainties should raise investor confidence in Qualcomm’s stand-alone value, potentially forcing Broadcom to offer more — or abandon its pursuit.
Be that as it may, Broadcom’s move sets the clock ticking on solving Qualcomm’s problems. This week is the deadline for board nominations for consideration at the company’s annual meeting, set for March 6. If shareholders are impatient now, they’ll be hopping by then.
A lot can happen in three months, from approvals for the NXP deal or a settlement with Apple on the one hand, to an increased or full-on hostile offer from Broadcom on the other. Waiting for some of those would give Qualcomm boss Steven Mollenkopf a stronger negotiating position.