Chip maker Broadcom boosted its buyout offer for San Diego's Qualcomm on Monday to $82 per share -- ratcheting up the pressure on shareholders to support a hostile takeover bid.
The massive $121 billion merger would be the largest ever in the tech industry, and represents a 50 percent premium over the trading price of Qualcomm's shares in early November, when Broadcom first made overtures to acquire the company.
Broadcom Chief Executive's Hock Tan called the increase his "final and best" offer for Qualcomm.
In November, Broadcom offered $70 per share to acquire Qualcomm, which the company's board rejected as too low.
Tan then nominated a slate of alternative candidates to replace all 11 members of Qualcomm's board of directors in a hostile takeover bid.
The new offer would pay Qualcomm shareholders $60 per share in cash and $22 in Broadcom stock. The cash portion of the deal is the same as it was in November. But the new offer increases the value of Broadcom shares from the previous offer of $10 per share.
"Our proposal includes substantially more Broadcom stock, which will allow Qualcomm stockholders a greater opportunity to participate in the upside created by the combined company's strategic and operational advantages," said Broadcom Chief Executive Hock Tan in a letter to Qualcomm's board.
In a statement, Qualcomm said it has received the revised offer and its board will review it.
"We suspect the price is still below what Qualcomm is looking for," said Bernstein Research Analyst Stacy Rasgon in a report. "At a minimum by the metrics they laid out a few weeks ago they would likely consider an $82 bid as undervaluing them."
The combined company would create a semiconductor giant with more than $50 billion in annual revenue -- trailing only Intel and Samsung.
But it also could cause significant upheaval at Qualcomm. Tan is known for operating lean. Broadcom, based in Singapore and San Jose, has roughly 17,000 global employees compared with Qualcomm's headcount of 33,000
In its fight against the hostile takeover, Qualcomm has argued that future growth prospects are strong as it pushes into new markets beyond smartphones, including personal computers, computer servers, automotive semiconductors, radio frequency chips and the Internet of Things gadgets.
The roll out of next generation 5G mobile networks beginning in 2019 also is expected to help Qualcomm, which estimates that it has a one to two year lead over competitors in 5G technology.
Qualcomm argues its shares have been temporarily depressed from legal battles with Apple and global antitrust regulators over its business practices surrounding patent licensing.
Once those disputes are resolved, the company believes it can deliver $6.75 to $7.50 per share in earnings in 2019.
But in a presentation to shareholders, Broadcom contends Qualcomm has long failed to deliver on its projections, including missing targets for its chip business revenue, cost reductions and operating profit margins.
"Given Qualcomm's broken promises, should investors believe Qualcomm can accurately project two years forward?," Broadcom said in its pitch to shareholders.
Rasgon called Broadcom's rebuttal of Qualcomm's growth prospects "simply brutal."
"Some elements of particular note include the observation that the 4G cycle did nothing for Qualcomm's stock in a much better market environment, the fact that Qualcomm's future growth model is the opposite of their history and that Qualcomm's stock has traded above $82 for only three days in its entire public company history," he said.
The new offer would increase the cash amount payable to Qualcomm stockholders if the deal fails to close in one year -- as well as pay a significant but undisclosed break-up fee should global regulators block the deal.
Qualcomm has argued that product overlap between the two companies would result in at least 18 months of regulatory review, require the sell off of product lines and could be rejected outright by global regulatory bodies.
Broadcom said it has fully negotiated financing for the transaction.
If its board candidates are elected by shareholders at Qualcomm's March 6 annual meeting, the Broadcom board "is prepared to invite (current Executive Chairman) Paul Jacobs and one other current Qualcomm director to join the combined company's board upon completion of the transaction."
Broadcom said the offer stands whether or not Qualcomm acquires Dutch automotive chip maker NXP Semiconductors at $110 per share.
But Broadcom did not say what happens to the offer if Qualcomm agrees to pay more for NXP.
Activist NXP shareholders contend the company is worth $135 per share today. Qualcomm is awaiting final regulatory clearance from China before making a final tender offer to NXP shareholders.
Though Qualcomm contends the $110 per share price tag for NXP is fair, NXP stock is currently trading at roughly $120 a share -- indicating that investors expect a higher offer from Qualcomm.
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