Deal Reporter
NXP bump could form part of Qualcomm defence against Broadcom – sources
Qualcomm [NASDAQ:QCOM] bumping its price for NXP Semiconductors [NASDAQ:NXPI] could form part of its defence against Broadcom's [NASDAQ:AVGO] unsolicited approach, two sources close to and a person familiar with the situation said.
Qualcomm’s board rejected Broadcom’s USD 130bn offer on 13 November, saying it significantly undervalues the company. Broadcom had stated in its offer letter that its proposal stands whether Qualcomm's pending acquisition of NXP is consummated on the currently disclosed terms of USD 110 per share or whether that transaction is terminated.
Without a price increase for NXP, Qualcomm will likely fail to achieve the shareholder acceptance threshold required and the deal will lapse, as previously reported. NXP is currently trading above the USD 110 per share offer price at USD 113.51.
By definition, a bump for NXP makes Qualcomm more expensive for Broadcom, the person familiar with the situation said. Acquiring the Dutch company significantly enhances Qualcomm’s value by taking it into growing markets such as automotives, the company has previously said.
Whether Qualcomm increases its offer for NXP is clearly an issue for Broadcom, the first source said. Broadcom's current offer undervalues Qualcomm as a standalone entity, let alone including NXP, this source said. If Qualcomm increases its bid for NXP, it would have to be seen whether Broadcom would also raise its offer for the combined entity, the source said.
A price increase would have ramifications for Broadcom's offer because it would effectively save the NXP deal, a second source close said. Qualcomm’s value clearly increases with the acquisition of NXP, and in turn the attractiveness of Broadcom’s offer further decreases, this source added.
As it stands, Qualcomm is committed to completing the NXP deal, the sources said. Qualcomm prefers purchasing NXP to a sale to Broadcom, the second source said. But there is the risk Qualcomm becomes more willing to engage with Broadcom and decides not to bump the NXP price, this source said.
However, a higher offer from Broadcom would not change Qualcomm’s desire to complete the deal, the first source said, pointing to the lengthy regulatory process it has already undertaken and the USD 2bn break fee cost for abandoning the deal.
One of the reasons Broadcom's first offer was inadequate was because Qualcomm is due to acquire NXP and the first offer didn’t seem to take full account of this, agreed a sector banker. But, Broadcom is free to approach Qualcomm shareholders to negotiate a higher price, and sell the deal versus a higher price for NXP, the banker said.
Qualcomm shareholders could prefer a sale to Broadcom than an increase in the NXP price, the sector banker said.
As a listed entity, Qualcomm is obliged to listen to shareholders - though it does retain some control over its decisions, the person familiar with the situation said.
Broadcom has already consulted some of Qualcomm's largest shareholders, according to reports. If Qualcomm shareholders agree to a price from Broadcom, an NXP bump would have limited effect, the banker pointed out.
Broadcom is reportedly preparing a slate of directors to be proposed for Qualcomm's board by the 8 December deadline as it gears up for a proxy fight. The proposed board changes would be voted on in Qualcomm’s annual general meeting on 6 March – giving Qualcomm shareholders an opportunity to show support for the Broadcom deal.
A bump in price for NXP is only anticipated after Qualcomm receives regulatory approval for its takeover, as previously reported. The European Commission (EC) could conditionally approve the deal by year end, although early 2018 may be more likely, as previously reported. The deal is also awaiting approval from China’s MOFCOM, Japan’s JFTC and South Korea’s KFTC.
Qualcomm declined to comment.