By Ben Dummett and Ted Greenwald
Qualcomm Inc. pumped new life into its bid for NXP
Semiconductors NV, raising its offer to $44 billion and locking up
support from key stakeholders -- a move Broadcom Ltd. previously
has threatened could cause it to abandon its $121 billion pursuit
of Qualcomm.
The elevated price for NXP, announced Tuesday, is the latest
twist in months of maneuvering between Qualcomm and Broadcom for an
advantage in what would be the largest tech deal ever.
Broadcom Chief Executive Hock Tan had stressed his offer for
Qualcomm -- a deal that would forge the third-biggest chip maker by
revenue -- depended on his target not raising its price for NXP
beyond the original $110 a share. But as a higher price for NXP
seemed increasingly inevitable, Mr. Tan recently softened his
position, saying he would keep his options open.
Now the two rivals are headed toward a March 6 showdown in which
Qualcomm shareholders are scheduled to vote on a slate of directors
nominated by Broadcom. In another recent concession seemingly aimed
at getting a deal done, Mr. Tan reduced his number of candidates
from 11 to six, seeking a majority rather than trying to unseat the
entire Qualcomm board.
Glass Lewis & Co., which advises big shareholders on
corporate votes, recommended Tuesday that Qualcomm owners vote for
all six Broadcom candidates, which would hand Broadcom's selections
a board majority. The firm said Qualcomm's failure to achieve
profitable growth and its continuing disputes with regulators and
customers led it to "doubt the credibility of Qualcomm's
stand-alone plan."
Qualcomm didn't respond to a request for comment about the
advisory firms' criticisms. In its statement Tuesday, Qualcomm said
despite the higher NXP price, it is "highly confident" in its
fiscal 2019 road map to deliver between $6.75 and $7.50 in adjusted
per-share earnings.
Institutional Shareholder Services Inc., meanwhile, recently
recommended stockholders vote for four Broadcom candidates, leaving
Qualcomm's candidates with a majority. A mixed board would "require
appropriate and demonstrable flexibility on both sides," ISS
said.
Qualcomm is looking to NXP to broaden its product line beyond
its smartphone stronghold to automobiles, security and
internet-connected devices, combined markets the company has
projected will be worth $77 billion by 2020. Qualcomm believes
those markets will give it a rich payoff for its investments in
fifth-generation cellular technology, known as 5G, which will roll
out in coming years.
Building momentum on the NXP deal allows Qualcomm to enter its
shareholder meeting with evidence it can deliver on plans to move
into fast-growing markets. The acquisition rests on the approval of
Chinese officials, the last regulatory hurdle, and NXP investors
throwing their support behind the deal.
Qualcomm made significant progress on that front, winning over
Elliott Management Corp. and others, which had argued the original
$39 billion offer for NXP was too low. Elliott had argued NXP, the
world's largest developer of chips for automobiles, was worth $135
a share; shares of the Dutch company had traded above $110 since
the summer.
Elliott, which owns a 7.2% stake in NXP, said Tuesday it agreed
to tender its shares in response to Qualcomm's new $127.50-a-share
offer. Qualcomm said it obtained binding agreements from other
shareholders as well, for a total of 28% of outstanding NXP
shares.
The revised offer came nearly a week after Broadcom and Qualcomm
executives sat down together for the first time since Broadcom
launched its takeover effort in November. Qualcomm has consistently
maintained the $121 billion bid -- a price Broadcom lifted from
$105 billion in what it said was a "best and final" offer --
undervalues the company, and that a deal would run into regulatory
troubles. The meeting seemingly resulted in no progress toward an
agreement.
In a statement Tuesday, Broadcom said the higher NXP bid
"demonstrates the Qualcomm board's disregard for its fiduciary
duty." The statement didn't address whether Broadcom would continue
its pursuit, beyond saying the company was "evaluating its
options."
"Qualcomm's board is still clearly rejecting Broadcom's offer,
and by increasing its bid for NXP they're moving towards trying to
remain independent," said Mike Walkley, an analyst with Canaccord
Genuity Group Inc.
Broadcom could keep its bid or walk, but another option, he
said, is reducing its offer ahead of the shareholder meeting to
compensate for the additional $6 billion Qualcomm hopes to pay for
NXP. "I don't think it's over just because Qualcomm raised its bid
for NXP," Mr. Walkley said.
In raising its bid for NXP, Qualcomm also lowered the threshold
for shareholder support to 70% from 80%, making it easier to
complete the deal.
On Tuesday, Qualcomm shares fell 1.8% to $63.67, while shares of
NXP jumped 6% to $125.58. Broadcom shares were little changed.
The Wall Street Journal reported earlier Tuesday that Qualcomm
was set to sweeten its offer.
Qualcomm's NXP offer "reduces the chances that a Broadcom deal
would go through at $82 a share," weighing on Qualcomm's stock,
said Chris Caso, an analyst with Raymond James Financial Inc.
The NXP deal has been wending its way through international
regulatory approvals for more than a year. On its recent earnings
call, Qualcomm estimated it would take three weeks to wrap up the
acquisition once China approves the deal.
"We are working hard to complete this transaction
expeditiously," Qualcomm CEO Steve Mollenkopf said Tuesday.
Write to Ben Dummett at ben.dummett@wsj.com and Ted Greenwald at
Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
February 20, 2018 16:06 ET (21:06 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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