Qualcomm has rebuffed a $105 billion buyout bid from Broadcom, setting up two of the world’s biggest chip makers for a potentially nasty takeover battle.
The proposal “significantly undervalues” the company, overlooking its reputation in mobile technology and potential for growth, Paul Jacobs, Qualcomm’s board chairman, said in a statement on Monday.
Broadcom’s offer, which would amount to the largest deal in the history of the tech industry and have significant implications for smartphone production, could also run afoul of antitrust regulators, Qualcomm said.
Broadcom, which said on Monday that it “remains fully committed to pursuing its acquisition of Qualcomm,” now has several options, each involving a degree of hostility.
The company could raise its bid price. Or it could take its case to shareholders, starting a proxy fight to swap out members of the current board of directors, all of whom are up for re-election in the spring.
Broadcom has until Dec. 8 to nominate a new slate.
The company could also try to assuage Qualcomm’s fears of government pushback by initiating the regulatory approval process for a potential deal. The company garnered praise from President Trump this month when it said it would move its corporate address to Delaware from Singapore.
Hock Tan, chief executive of Broadcom, said in a statement on Monday, “This transaction will create a strong, global company with an impressive portfolio of industry-leading technologies and products, and we have received positive feedback from key customers about this combination.”
He added, “It remains our strong preference to engage cooperatively with Qualcomm’s board of directors and management team.”
Broadcom is not Qualcomm’s only headache. The company, based in San Diego, is also brawling with Apple, a major client, over royalties that it collects on mobile gadgets. Apple could weigh in on Broadcom’s bid, analysts said, and might prefer that Qualcomm remain independent.
“No customer wants to see a supplier have that much power,” said Romit Shah, a senior equity analyst at Nomura Instinet. “Broadcom has to convince those companies that they stand to benefit.”
Qualcomm’s stock price rose as much as 2.7 percent to $66.31 a share in afternoon trading on Monday, but remained under Broadcom’s $70-a-share offer, suggesting some skepticism on Wall Street.
Still, the proposal represents a 28 percent premium over Qualcomm’s closing price on Nov. 2, before rumors of the bid became public. The Soxx index of American semiconductor stocks has increased nearly 280 percent in the past five years, compared with a 20 percent increase for Qualcomm — a “pretty dramatic underperformance” by the company, said Rick Schafer, an equity analyst with Oppenheimer.
“Qualcomm has myriad headwinds and a lot of unanswered questions,” he said. “This would really be peas and carrots — a pretty symbiotic marriage.”