By Heather Hamilton, contributing writer
Reports from Bloomberg indicate a potential change on the horizon for chipmaker Qualcomm. Broadcom is apparently launching a campaign to acquire the cellular modem vendor in a deal valued at $130 billion — including $25 billion of net debt — making it the largest potential acquisition in tech history.
Bloomberg says that Qualcomm remains unsatisfied with the deal because they believe that it undervalues the company. Publicly, Qualcomm has mentioned only that they are “evaluating” the deal.
Right now, there are only two smartphone vendors on the market with a choice not to use Qualcomm chips, reports Ars Technica. This includes Samsung, which competes internationally using its own Exynos line, though relies on Qualcomm chips in the U.S. The other is, of course, Apple, who also works with competitor Intel.
The initial offer was around $105 billion, with an offer of $70 a share in cash and stock, a 28% premium over the closing price for the stock on November 2. If the deal is successful, Broadcom would be the third-largest chipmaker, behind only Samsung Electronics Co. and Intel Corp. Right now, Dell Inc.’s acquisition of EMC in 2015 is the largest in the industry, at $67 billion.
Bloomberg believes that Qualcomm will rebuff the proposal, seeing it as an opportunistic move to get a good deal, especially given Qualcomm’s involvement in a variety of regulatory actions, including the Apple lawsuit, which may cause Apple to stop the purchase of Qualcomm chips for use in their products — a major source of revenue for Qualcomm.
Broadcom’s bid values Qualcomm at 21.2 times earnings before interest, tax, depreciation, and amortization. Industry deals have a medium multiple of 22.5, reports Bloomberg. Experts expect that the deal will go back and forth a number of times. Monday saw a 4% rise in Qualcomm share prices.
Broadcom recently announced that their headquarters will be moving to the United States, though they already list San Jose, California, as corporate co-headquarters, which will likely help potential issues with antitrust regulators. While it may only be a formality, the change is expected to make it easier for Broadcom to launch additional merger and acquisition deals from the U.S. and complete its current takeover of Brocade Communications Systems Inc. And, although Qualcomm has not yet fully closed on the NXP acquisition, Broadcom maintains that their offer stands either way.
In a statement on Monday, Broadcom CEO Hock Tan said, “This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products. We would not make this offer if we were not confident that our common global customers would embrace the proposed combination.”
Sources: Bloomberg, Ars Technica, Fortune
Image Source: Pixabay
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