(Image courtesy of Chris Hsia, Creative Commons).

Broadcom Withdraws Bid on Qualcomm, Reiterates Move to U.S.

March 15, 2018
Broadcom Withdraws Bid on Qualcomm, Reiterates Pledge to Move to U.S.

Following the equivalent of a cease-and-desist order from President Trump, Broadcom has withdrawn its $117 billion offer for Qualcomm and the six directors it nominated to Qualcomm’s board. Nevertheless, the company is still moving its legal headquarters stateside.

“Although we are disappointed with this outcome, Broadcom will comply” with the executive order signed by President Donald Trump on Monday to preemptively block the potential deal. “Broadcom will continue to move forward with its redomiciliation process,” the company added in a statement.

The announcement ends Broadcom’s courtship of the San Diego, California-based Qualcomm. The company placed a $105 billion bid on Qualcomm in November, shortly after its chief executive Hock Tan announced in the Oval Office with President Trump that Broadcom would leave Singapore and reincorporate in the U.S.

By planting roots in the U.S., Broadcom appeared to be currying favor with a government that had also recently passed a massive corporate tax cut. Shortly after the Oval Office announcement, Broadcom was approved to complete its $5.9 billion Brocade Communications deal, which had been stalled by the Treasury Department.

Over the next five months, Broadcom ratcheted its offer up to $121 billion, penciled in fail-safes for Qualcomm shareholders, and then lowered its bid to $117 billion as retaliation for the sweetener that Qualcomm heaped onto its NXP Semiconductors deal. If Broadcom had succeeded, it would have become the world's third largest chip maker by revenue.

Qualcomm’s board repeatedly rebuffed the overtures. Even though it had struggled to close the $47 billion NXP deal, locked horns with antitrust regulators around the world, and faced open revolt from Apple over its patent licensing business, Qualcomm’s management team argued that Broadcom was completely underestimating its value.

Qualcomm also argued that it would take more than a year for antitrust authorities to approve the acquisition. Ultimately, regulators did forestall the deal, though not antitrust cops. Broadcom came to the attention of a committee inside the Treasury Department that considers the national security risks associated with foreign firms buying American companies.

On March 4, the unit, called the Committee on Foreign Investment in the United States, ordered Qualcomm to delay a shareholder meeting scheduled only days later where the company’s investors would vote on the composition of the board. The six board candidates that Broadcom had nominated were on the ballot.

CFIUS raised concerns that Broadcom would slash Qualcomm’s research and development budget like it had with other companies it acquired. That, the committee wrote in a letter disclosed on March 4, threatened to undermine Qualcomm’s leading position in 5G wireless technology, giving China’s Huawei an opportunity to fill the void, hurting U.S. national security;

On March 12, the Treasury Department said that it agreed with CFIUS’s conclusions. The agency also highlighted Qualcomm’s contracts with the Defense Department. Later that day, President Trump preemptively blocked the deal, squashing Broadcom’s dim hopes of pulling off the largest-ever deal in the technology industry.

Broadcom has argued that CFIUS was not permitted to review the deal because it would complete the acquisition as American company. It expects to officially redomicile by April. Nevertheless, Qualcomm pushed for the review and claimed that Broadcom had also been in contact with CFIUS before the March 4 announcement.

The presidential order pulled Qualcomm out of a sticky situation. Broadcom had secured more than enough votes to install its candidates on Qualcomm’s board, Bloomberg reported. The order also prohibited Broadcom’s nominees from being elected at Qualcomm’s shareholder meeting, blocking a possible hostile takeover.

Deterring Broadcom only removed one of the numerous problems facing Qualcomm. The thorniest issue is the company’s acquisition of NXP, the largest maker of automotive chips and a major player in the growing Internet of Things market. But the company also has to contend with billions of dollars in regulatory fines and ongoing legal battles with Apple.

Even after it sweetened the deal and eased European regulators' antitrust concerns, Qualcomm has struggled to strike an accord with NXP investors. The company has accumulated only about 19% of the 70% of outstanding shares to close the now $54.5 billion deal, which was first announced in October 2016. It is also still awaiting approval from China's top regulator, MOFCOM.

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