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A version of this guest post by analyst Ben Bajarin originally appeared on Techpinions, a website dedicated to informed opinions, insight and perspective on the tech industry. It is part of the site’s Think.Tank series, for which a subscription is required.
The back-and-forth between rival chipmakers Qualcomm and Broadcom can only be described as a soap opera. Both companies are using PR to go back and forth and talk to each other through public channels. This is largely for the shareholders, and the media to a degree, in order to help shape public sentiment and to be on the record.
Here’s where we are at this point: The White House is now paying attention to the $117 billion takeover fight between the two companies, because Broadcom is based in Singapore and Qualcomm is based in San Diego, and the Trump administration isn’t sure that an Asian buyer should own a big U.S. tech company. Qualcomm management agrees, and has been fighting off Broadcom’s advances for months. This week, a secretive government panel called the Committee on Foreign Investment in the United States moved to stall the takeover for 30 days until April 5 while it reviews the deal. And today, the U.S. government said Broadcom’s proposed acquisition of Qualcomm could pose a national security risk, and called for a full investigation into the hostile bid.
I think it would be helpful to look briefly at a few key pieces of the timeline in this saga:
Nov. 6, 2017: Broadcom makes an unsolicited bid for Qualcomm at $70 per share.
I bolded the emphasis there because it is worth remembering there had been no prior discussions between the companies, and Broadcom’s hostile takeover offer came out of the blue. The $70-per-share offer, according to an official Qualcomm statement, was so low that it didn’t merit engagement.
Nov. 13, 2017: Qualcomm rejects Broadcom’s $103 billion takeover bid, saying the offer undervalued the company and would face regulatory hurdles.
By now it should be clear Qualcomm wants nothing to do with Broadcom. I will go into details why after we finish looking at the timeline of key events.
Dec. 4, 2017: Broadcom makes its first formal move toward a hostile bid to take over Qualcomm by nominating 11 directors to its rival’s board.
Dec. 22, 2017: Qualcomm rejects Broadcom and private equity firm Silver Lake Partners’ 11 director nominees, setting the stage for a proxy battle.
Feb. 5, 2018: Broadcom raises its offer for Qualcomm to $82 per share from $70 per share, calling the bid its “best and final offer.” The revised offer is contingent on either Qualcomm acquiring NXP Semiconductors for $38 billion or the NXP deal being terminated.
Feb. 8, 2018: Qualcomm rejects Broadcom’s revised buyout offer of $121 billion, but proposes meeting to address the bid’s “serious deficiencies in value and certainty.”
Feb. 14, 2018: Representatives of Broadcom and Qualcomm meet for the first time to discuss a potential combination; Qualcomm later calls the meeting “constructive.”
Feb. 20, 2018: Qualcomm deals a blow to Broadcom’s raised bid by increasing its offer for NXP Semiconductors to $127.50 per share in cash from $110 per share.
Okay, now things are getting a bit more interesting. The two companies got together to talk. I was a bit shocked when this happened, because I believe deep in my bones that Qualcomm wants nothing to do with Broadcom. Perhaps Qualcomm’s board and the executive committee felt they needed to take this meeting as a show of good faith, as well as to present the public-facing view that they are willing to talk with Broadcom. Especially in light of Qualcomm’s increased bid for NXP, which can only be interpreted as a hostile way to get Broadcom to back off, which in turn needed to be justified to shareholders.
In a recent statement from Qualcomm in advance of its annual shareholder meeting — rescheduled yesterday for April 5 — where a vote will be taken regarding the Broadcom acquisition/merger bid, the following statement was made:
Since evaluating and subsequently rejecting the $82 per share offer on February 8, Qualcomm has repeatedly and genuinely attempted to engage with Broadcom on issues including price, regulatory and other closing certainties, including most recently at meetings on February 14 and February 23. In each of those meetings, Broadcom refused to engage in good faith. It instead reiterated its “best and final” stance which it established prior to our first meeting, despite our attempts to find a path to a deal that makes sense for Qualcomm stockholders. Broadcom’s refusal to outline its proposal and the future direction of Qualcomm’s licensing business also raises significant issues from a value and regulatory perspective.
Qualcomm is trying to balance the fine line of making it clear to shareholders and the general public that it is not in its best interests to agree to the terms of Broadcom’s proposals. Qualcomm needs to make sure that its wording and tactics don’t raise any issues or potential lawsuits from activist investors who would be willing to jeopardize Qualcomm’s future just to make some quick money now. In the end, this is what I think this continuing dog-and-pony show is about.
Qualcomm has no interest, never has and never will, in letting Broadcom take over its company. If you remember your history, Broadcom isn’t actually Broadcom — it is Avago, which purchased Broadcom in 2015 for $37 billion dollars. I had done quite a bit with Broadcom up to that point, and had close contacts there even after the acquisition. Broadcom, like Qualcomm, was an aggressive patent pursuer and prided itself on its culture of innovation. Everyone I know left because of the culture clash Avago brought to the scene, where everything was about the bottom line and management was very short-sighted when it came to R&D. Should Broadcom get its way and acquire Qualcomm, the same thing would happen, and it would be the end of Qualcomm as we know it.
A review of the timeline, in light of the upcoming Qualcomm shareholder vote regarding the board of directors, reveals a clever set of maneuvers and carefully crafted public wording by Qualcomm. I think this line from Qualcomm’s latest press release from the board sums up its stance:
All three items — price, closing certainty and the licensing business — are critical to the Board’s evaluation of Broadcom’s proposal, and without a meaningful discussion or an agreement on these items, the Qualcomm Board believes it is not in the best interest of Qualcomm’s stockholders to elect Broadcom’s nominees. The Qualcomm Board of Directors remains ready to engage with Broadcom on these issues both before and after the March 6 stockholder meeting.
Qualcomm is leading with price, closing certainty and licensing business. But what really is at stake is a culture of innovation that the global tech industry depends on. That is much harder to argue and plead with shareholders within this vote, which is why the company is leading with the tangible items. I truly hope Qualcomm investors do the right thing and vote to reelect all 11 current board members.
Ben Bajarin is a principal analyst at Creative Strategies Inc., an industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research. He is a husband, father, gadget enthusiast, trend spotter, early adopter and hobby farmer. Reach him @BenBajarin.
This article originally appeared on Recode.net.
