Qualcomm raises offer for NXP, putting Broadcom in a dilemma

Qualcomm has raised its offer for NXP Semiconductors by 16%, to $127.50 a share, despite its own predator, Broadcom, saying it did not think the price should go up. In response Broadcom has now lowered its price for a Qualcomm with NXP and highlighted to Qualcomm shareholders that it believes the NXP deal gives some of their money away.

This sparked speculation that Qualcomm, which had previously rejected Broadcom’s advances again, had made the move to reduce the chances of a takeover.

Raising its NXP bid to the equivalent of $43 billion was enough to secure support from the holders of about 28% of NXP stock, including activist Elliott Management, which had previously said the deal undervalued the Dutch firm. It is now likely that Qualcomm will secure sufficient shareholder support, but the question remains whether or not completion of the deal, or moving the deal closer to completion prior to its fateful March shareholders meeting, will see off the unwanted attentions of Broadcom.

Broadcom had said, when it raised its own offer for Qualcomm to an industry record-breaking $121bn, that this was contingent on the NXP deal going through at originally agreed price of $110 a share and it consequently dropped its offer by $3 after the increased offer was announced, going from $82 a share down to $79.

Qualcomm said it raised the offer price because NXP’s earnings have improved ahead of expectations in the time that the proposed deal has been going through regulatory approval processes.

Meanwhile, Qualcomm is being urged to continue talking to Broadcom, following an initial meeting last week, which resulted in another rejection from the San Diego firm. Proxy advisory firm ISS has called on Qualcomm to consider the revised Broadcom bid as a “starting point” for further negotiation, though Broadcom says the $82 per share price is its “best and final offer”. The Qualcomm board has since dissed the Broadcom deal as being nowhere near enough and showed what it really thinks by upping the NXP deal.

Qualcomm walks a tightrope between upsetting its shareholders enough that they sell to Broadcom or impressing them that it really wants NXP and sees a bright future with it in tow.

ISS is recommending to Qualcomm shareholders that they vote for four of the six board members that Broadcom has put forward for election at Qualcomm’s shareholder meeting on March 6. Broadcom said earlier in February that it believes it only needs to elect six board members, not 11, to gain control of the Qualcomm board.

After last week’s meeting, Qualcomm’s board said it had found the talks “constructive,” and that it would be open to further discussions.

“The board remains unanimously of the view that this proposal materially undervalues Qualcomm and has an unacceptably high level of risk, and therefore is not in the best interests of Qualcomm stockholders,” the firm said in a letter to its would-be acquirer on Friday.

Qualcomm had agreed to the meeting in New York on condition that Broadcom came ready to talk about a higher price and to explain how it planned to get regulatory approval around the world.

“Qualcomm’s 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,” the company said.