Broadcom (AVGO) announced this morning that it has increased its prior offer to acquire Qualcomm (QCOM). In November 2017, QCOM rejected AVGO's offer of $60 in cash + $10 in Broadcom stock. Today, AVGO is offering what it calls its best and final offer: $60 in cash + $22 in Broadcom stock for a total value of $82 per share. QCOM is currently trading around $65.
QCOM says it will review the revised proposal but has no further comment. AVGO notes that the new deal represents a significantly improved offer. It represents a 50% premium over the closing price of QCOM on November 2, 2017, the last unaffected trading day prior to media speculation regarding a potential transaction.
Complicating the deal a bit is that QCOM is attempting to acquire NXP Semiconductors (NXPI) for $110 per share. Broadcom's improved offer is premised on either Qualcomm acquiring NXPI or the transaction being terminated. Broadcom believes its revised offer is vastly superior to Qualcomm's standalone prospects, with or without the closing of the NXP transaction.
If QCOM were to agree to be acquired, the combined company would be a true powerhouse in the mobile phone semiconductor space. Broadcom focuses on connectivity chips. It serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial & other. Qualcomm supplies chips that are used in digital wireless communications equipment. Its flagship Snapdragon product line and software are based on its CDMA technology.
QCOM's stock price had been just trudging along sideways for most of 2017 before spiking higher in early November when news reports started to speculate that an offer from AVGO was imminent.
You would think that with an increased offer today that QCOM's stock price would be rocketing higher but it's actually down today. Part of that is the weak overall market but it also may be that QCOM shareholders are skeptical that the company will accept the revised offer. While the new offer is higher in terms of stock, the cash portion is not changing. Cash is generally seen as a more attractive currency in terms of a takeover so this revised offer lacks some luster. Also, QCOM shareholders may not want to own AVGO stock after the deal closes.
It will be interesting to see how this storyline plays out. Our guess is that QCOM will reject the revised offer as well, but we could be wrong on that. Our sense is that QCOM seems to enjoy being independent, especially with 5G technology around the corner. QCOM sees itself as a leader in 5G technology so it may want to chart its own course as this technology gets rolled out.