(Image courtesy of Maurizio Pesce, Creative Commons).

Qualcomm Raises Offer for NXP, Dealing Blow to Broadcom's Bid

Qualcomm significantly raised its offer for NXP Semiconductors, pledging to pay around $54.5 billion to sway shareholders that have been holding out for a better deal. The renewed deal also threatens to derail Broadcom’s $121 billion bid for Qualcomm, which has repeatedly deflected Broadcom’s proposals.

Qualcomm originally agreed to pay $47 billion in cash when it announced the deal around fifteen months ago. But the company has been plagued by shareholders skeptical of the deal, which has been under extreme scrutiny from antitrust agencies. The European Union recently approved the deal, which has yet to be given the green light in China.

“NXP is a highly strategic and attractive acquisition for Qualcomm that enhances the value of our leading 5G technologies,” said Paul Jacobs, chairman of Qualcomm’s board, in a statement. “We also believe the revised agreement provides certainty for both Qualcomm and NXP shareholders.”

The agreement lowers minimum number of shares that Qualcomm needs to combine with NXP, the largest maker of automotive chips. Qualcomm had been struggling to sway 80 percent of shareholders to tender their shares for $110 per share. Now the company only needs to wrangle 70 percent of shareholders at the new $127.50 price.

Qualcomm had not been close to the 80 percent threshold. Several institutional investors that together own more than 28 percent of all outstanding NXP shares have agreed to the deal. That includes Elliott Management, which led the charge in favor of Qualcomm raising the offer to reflect NXP’s recent growth markets like automotive.

Qualcomm is still facing several stumbling blocks. Many shareholders have yet to accept the revised offer from Qualcomm, which has still not been approved by China’s antitrust regulator, MOFCOM. The company previously expected to be given clearance this month but it looks unlikely that will happen.

Qualcomm is trying to foil a hostile takeover by Broadcom, which has previously stated that it would withdraw if Qualcomm agreed to sweeten the NXP deal. In recent months, Qualcomm has pointed to the acquisition to persuade shareholders that its current executives can generate heftier profits in the long run than Broadcom.

Last year, Qualcomm rebuffed Broadcom’s $105 billion offer for undervaluing the potential revenue it could reap from the next generation of 5G wireless technology. The company also said that it could over a year for antitrust regulators to sort through the deal, cutting into its licensing profits and hampering its development of 5G technology.

After Qualcomm’s board unanimously rejected the bid, Broadcom submitted another offer valued at around $121 billion, which also rebuffed despite an $8 billion breakup fee meant to compensate Qualcomm if the transaction collapsed. Hock Tan, chief executive of Broadcom, said that $82 per share was its “best and final” offer.

Steve Mollenkopf, Qualcomm’s chief executive, argued that Broadcom still had not resolved the regulatory issues of the first proposal, nor did the $121 billion offer reflect the full value of its NXP acquisition. Qualcomm estimates it will generate profits between $6.75 and $7.50 per share next year, and NXP will account for around $1.50.

The advisory firm Institutional Shareholder Services recommended in a recent report that Qualcomm shareholders vote for four of the directors that Broadcom nominated for election at Qualcomm’s investor meeting next month. That would fall short of the number that Broadcom needs to push through a hostile takeover, but it could prompt more negotiation.

Qualcomm’s board unanimously rejected the deal after meeting with Broadcom’s board last week. Following the meeting, Mollenkopf said that the board is “open to further discussions with Broadcom to see if a proposal that appropriately reflects the true value of Qualcomm shares, and ensures an appropriate level of deal certainty, can be obtained.”

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