Last month, Broadcom bid $105 billion for Qualcomm, which turned down the deal. This month, Broadcom ignited a proxy battle to replace all 11 directors seated on Qualcomm’s board, which unanimously rejected all of Broadcom’s candidates before an annual shareholder meeting in March.
On Friday, the board of directors ruled out every one of the candidates proposed by Broadcom and Silver Lake Partners, the private equity firm that bought Broadcom – previously called Avago Technologies – in 2005 and took it through an initial public offering. Qualcomm said in a statement that their nominees would inherently have a conflict of interest.
Last month, Broadcom said that it would support expanding the board to keep three current directors if all its nominees were appointed in a shareholder vote, which would be something of a referendum on what would be the largest semiconductor deal ever. Qualcomm has argued that its existing management would pay off in the long run.
Broadcom’s board members would be able to accept the $70 per share bid for Qualcomm, which urged keeping all its existing directors, including executive chairman Paul Jacobs, the son of Qualcomm’s co-founder Irwin Jacobs. The nominations were detailed in a preliminary proxy statement, which also shed light on Broadcom’s approach to the deal.
Last April, Steve Mollenkopf, Qualcomm’s chief executive, had a meeting with Kenneth Hao, managing director of Silver Lake, to shoot the breeze about the state of the chip industry, according to the regulatory filing. In recent years, chip companies have bought each other to soften the blow of rising development costs. Broadcom has embodied that strategy.
In July, Mollenkopf agreed to attend a meeting at the offices of Silver Lake in Menlo Park, California, with Hock Tan, Broadcom’s chief executive officer and the financial mind behind its billions of dollars of semiconductor deals over the last decade. Along with Hao, he used the meeting to present “a proposal for a potential business combination.”
“While there were no pricing or material terms of an offer indicated, Mr. Tan's presentation indicated that the more attractive transaction was to have Qualcomm acquire Broadcom,” the filing said. This was in August, almost three months before Qualcomm divulged that it agreed to acquire NXP Semiconductors in a $47 billion deal, which is still treading on thin ice.
Broadcom would not resume its hunt until the next year, when Qualcomm came under assault for how it licenses standard patents that define 3G and 4G wireless communications. On January 17, the United States Federal Trade Commission lodged a complaint, saying that the company’s patent practices unfairly squeezed out rivals in wireless chips. Three days later, Apple alleged in a lawsuit that Qualcomm overcharged for the wireless patents used in its smartphones, which has turned into a tangled web of legal squabbles.
The blowback caused Qualcomm’s stock price plummet. Several days later, Tan called Mollenkopf “indicating in a non-specific way that Broadcom was available to talk about transactions,” according to the filing. But Broadcom’s boss “did not present an offer in this brief conversation and no terms of any potential transaction, including price, were discussed.”
Nothing else was said for eleven months, the filing said. Broadcom offered $105 billion for Qualcomm, which fired back on November 13 that the offer was far too low. Qualcomm said that the companies would have to run a regulatory steeplechase, which could drag out the antitrust approval process for over a year. It said Broadcom had done little to ease its concerns.
The same night, Tan called Mollenkopf and left a voicemail, in which he said that he was willing to work with Qualcomm on the offer from Broadcom, which this month filed a premerger notification with the antitrust division of U.S. Department of Justice. He followed up by sending a text message to Mollenkopf. He sent the same message, the filing said.
“Mollenkopf responded via text message that the company’s press release spoke for itself,” according to the regulatory filing.