Broadcom is planning an unsolicited takeover approach to rival chip maker Qualcomm, a bid that could be worth $100bn but also faces steep odds of success reports Dow Jones.
News of the potential bid surfaced just a day after Singapore-based Broadcom announced plans to bring its headquarters back to the US, with Hock Tan heralding the move in a news conference at the White House with President Donald Trump. Broadcom cited the potential for lower US corporate rates, though investors expressed uncertainty about what it might mean for the company's tax bill.
Qualcomm’s share price rose +3.54% to $64 in pre-market trading on Monday. Broadcom may launch its bid for Qualcomm this weekend, according to a person familiar with the matter. It is likely to be made up mainly of cash, with 10% or 20% in stock, the person said.
It isn't clear how much Broadcom would offer for Qualcomm, which currently has a market value of roughly $90bn. There is no guarantee an approach will be made or that Qualcomm would be receptive. It is even less certain that there ultimately would be such a deal given potential regulatory and other hurdles.
Market leading smartphone technology
Qualcomm is the market leader in chips that manage wireless communications in smartphones. It supplies chips for a portion of Apple Inc.'s iPhones and its gear is at the heart of many high-end Android phones.
Qualcomm also owns patents on technology essential to implementing cellular-communications standards, which allows it to collect a royalty on nearly every smartphone sold world-wide. And it is a front-runner in the emerging fifth-generation cellular standard known as 5G.
Broadcom sells a diverse line of equipment for networking and communications - including technology for smartphones from Apple and Samsung Electronics Co. - as well as data storage, electronic displays and set-top boxes.
Sector undergoing dealmaking wave
Broadcom under Tan has pursued a string of acquisitions and its move to purchase Qualcomm reflect a broad wave of consolidation in the semiconductor industry in recent years and has driven Qualcomm's own $39bn proposed deal for NXP Semiconductors NV.
The companies are still seeking regulatory approval for that deal. In another sign of the deal-making push, Marvell Technology Group Ltd. is in advanced talks to combine with Cavium Inc., The Wall Street Journal reported Friday, a deal that would create a chip maker worth some $14bn.
Chip makers are aiming to boost declining revenue as competition cuts into prices. Semiconductors are central to digital technology and have infiltrated an ever broader range of products as computing and wireless-communications functions become indispensable in products ranging from cars and doorbells to factory equipment.
Broadcom and Qualcomm have largely complementary product lines. By purchasing Qualcomm, Broadcom would get cellular technologies that have proven enormously valuable - and in which Broadcom in its earlier incarnation failed to gain a foothold.
The companies overlap in Wi-Fi and Bluetooth technology, which could draw antitrust scrutiny to any deal. "That's a huge regulatory issue," said Patrick Moorhead, an analyst with Moor Insights & Strategy. "They're the two biggest in the business."
Qualcomm lately has faced scrutiny from antitrust agencies in several jurisdictions worldwide, including the U.S., where the government's case is pending. The company has paid hefty regulatory fines in China, South Korea and Taiwan.
Resolution possible to Apple and Qualcomm dispute?
Tan is known for managing lean operations, and he could wring efficiencies out of Qualcomm, said analyst Stacy Rasgon of Bernstein Research. Moreover, Tan's relationship with Apple could be helpful in resolving the bitter legal battle between the iPhone maker and Qualcomm.
That battle appeared to escalate this week, when the Journal reported that Apple is designing iPhones and iPads for next year that would jettison Qualcomm's components as it considers using only modem chips from Intel Corp. and possibly MediaTek Inc. Qualcomm shares dropped substantially on the news.
It isn't clear what a deal between Broadcom and Qualcomm would mean for Qualcomm's effort to buy NXP, which was announced over a year ago Dow Jones reports. That deal was originally scheduled to close by the end of the year, but recently Qualcomm acknowledged the timing could slip into 2018.