Combination of rival chip makers could be worth $100 billion;
long road to approval
By Dana Mattioli and Ted Greenwald
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 4, 2017).
Broadcom Ltd. is planning an unsolicited takeover approach to
rival chip maker Qualcomm Inc., a bid that could be worth $100
billion but also faces steep odds of success.
Broadcom may launch its bid for Qualcomm this weekend, according
to a person familiar with the matter. It is likely to be made up
mainly of cash, with 10% or 20% in stock, the person said.
It isn't clear how much Broadcom would offer for Qualcomm, which
currently has a market value of roughly $90 billion. There is no
guarantee an approach will be made or that Qualcomm would be
receptive. It is even less certain that there ultimately would be
such a deal given potential regulatory and other hurdles.
Qualcomm is the market leader in chips that manage wireless
communications in smartphones. It supplies chips for a portion of
Apple Inc.'s iPhones and its gear is at the heart of many high-end
Android phones. Qualcomm also owns patents on technology essential
to implementing cellular-communications standards, which allows it
to collect a royalty on nearly every smartphone sold world-wide.
And it is a front-runner in the emerging fifth-generation cellular
standard known as 5G.
Broadcom sells a diverse line of equipment for networking and
communications -- including technology for smartphones from Apple
and Samsung Electronics Co. -- as well as data storage, electronic
displays and set-top boxes. Like Qualcomm, Broadcom is a so-called
fabless chip company, designing processors while relying on
manufacturers such as Taiwan Semiconductor Manufacturing Co. to
actually make them.
Broadcom used to be called Avago Technologies Ltd. In 2015, the
company agreed to buy Broadcom for roughly $37 billion and changed
its name to Broadcom when the deal closed. Broadcom had been best
known as a supplier of highly specialized networking chips and its
revenue was twice the size of Avago's at the time of the merger.
Under Chief Executive Hock Tan, Broadcom has pursued a string of
acquisitions.
Both Broadcom's origins and its move to purchase Qualcomm
reflect a broad wave of consolidation in the semiconductor industry
in recent years that has driven Qualcomm's own $39 billion proposed
deal for NXP Semiconductors NV. The companies are still seeking
regulatory approval for that deal. In another sign of the
deal-making push, Marvell Technology Group Ltd. is in advanced
talks to combine with Cavium Inc., The Wall Street Journal reported
Friday, a deal that would create a chip maker worth some $14
billion.
Chip makers are aiming to boost declining revenue as competition
cuts into prices. Semiconductors are central to digital technology
and have infiltrated an ever broader range of products as computing
and wireless-communications functions become indispensable in
products ranging from cars and doorbells to factory equipment.
Broadcom and Qualcomm have largely complementary product lines.
By purchasing Qualcomm, Broadcom would get cellular technologies
that have proven enormously valuable -- and in which Broadcom in
its earlier incarnation failed to gain a foothold.
The companies overlap in Wi-Fi and Bluetooth technology, which
could draw antitrust scrutiny to any deal. "That's a huge
regulatory issue," said Patrick Moorhead, an analyst with Moor
Insights & Strategy. "They're the two biggest in the
business."
Qualcomm lately has faced scrutiny from antitrust agencies in
several jurisdictions worldwide, including the U.S., where the
government's case is pending. The company has paid hefty regulatory
fines in China, South Korea and Taiwan.
Broadcom's Mr. Tan is known for managing lean operations, and he
could wring efficiencies out of Qualcomm, said analyst Stacy Rasgon
of Bernstein Research. Moreover, Mr. Tan's relationship with Apple
could be helpful in resolving the bitter legal battle between the
iPhone maker and Qualcomm.
That battle appeared to escalate this week, when the Journal
reported that Apple is designing iPhones and iPads for next year
that would jettison Qualcomm's components as it considers using
only modem chips from Intel Corp. and possibly MediaTek Inc.
Qualcomm shares dropped substantially on the news.
It isn't clear what a deal between Broadcom and Qualcomm would
mean for Qualcomm's effort to buy NXP, which was announced over a
year ago. That deal was originally scheduled to close by the end of
the year, but recently Qualcomm acknowledged the timing could slip
into 2018.
NXP shares fell 2.1% to close at $115.02 on fears that a bid
from Broadcom for Qualcomm could jeopardize the NXP deal.
Qualcomm shares, meanwhile, rose 12.7% to close at $61.81 after
Bloomberg reported that Broadcom was considering a deal for the
company and the Journal reported that a bid was imminent. Broadcom
shares rose 5.4% to $273.63.
Activist shareholder Elliott Management Corp. has been pushing
for a higher price in the NXP deal than the $110 per share Qualcomm
agreed to pay. Elliott has retained investment bank UBS Group AG to
help it in the effort and to seek another potential bidder for NXP,
the Journal reported Thursday. It isn't clear if Elliott or UBS has
been in communication with Broadcom.
News of the potential bid surfaced just a day after
Singapore-based Broadcom announced plans to bring its headquarters
back to the U.S., with Mr. Tan heralding the move in a news
conference at the White House with President Donald Trump. Broadcom
cited the potential for lower U.S. corporate rates, though
investors expressed uncertainty about what it might mean for the
company's tax bill.
Either way, analysts said that a U.S. domicile for Broadcom
could boost its ability to complete its proposed acquisition of
Brocade Communications Systems Inc.
The companies have been trying to complete the $5.5 billion
tie-up since last year but the transaction has been delayed due to
a review by the Committee on Foreign Investment in the United
States. Broadcom said the domicile change will occur regardless of
whether a tax overhaul is passed in the U.S.
--Chris Dieterich contributed to this article.
Write to Dana Mattioli at dana.mattioli@wsj.com and Ted
Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
November 04, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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