One thing to bear in mind with today’s news that Broadcom Ltd. (NASDAQ: AVGO) has made an unsolicited offer of about $105 billion to acquire San Diego-based Qualcomm (NASDAQ: QCOM) is that this deal, if it happens, is going to take time.
Aside from the complications involved with combining the global operations of two Fortune 500 chip-making giants (Qualcomm has a market valuation of almost $92 billion; Broadcom’s is over $111 billion), there are layers upon layers of complexity to the deal:
—Qualcomm, under pressure from European regulators, has yet to consummate its year-old offer to acquire the Dutch semiconductor maker NXP for roughly $47 billion. In its statement today, Broadcom says its buyout proposal stands regardless of whether the NXP deal can be closed. NXP shareholder activists also have been campaigning to wring a higher price from Qualcomm out of the deal. What happens if European regulators move to review the Broadcom-Qualcomm aspect of the deal?
—Broadcom likewise has yet to consummate its own year-old buyout of the storage networking company Brocade Communications (NASDAQ: BRCD for somewhere between $5.5 and $5.9 billion.
One of the significant complications is that Broadcom itself is no longer a U.S. company (and Qualcomm rival) based just up the road in nearby Irvine, CA. Singapore’s Avago Technologies, once a semiconductor products division of Hewlett Packard, acquired Broadcom in early 2016 for roughly $37 billion in cash and stock—and retained the Broadcom name.
The ink on the Broadcom buyout was barely dry when Broadcom-Avago CEO Hock Tan moved in 2016 to acquire San Jose, CA-based Brocade. It seemed like a done deal in July, after the takeover cleared antitrust review by the FTC. But the buyout was delayed again when the Committee on Foreign Investment in the United States announced plans to review the buyout. The Broadcom-Brocade deal took yet another turn last week when President Trump and Tan announced that Broadcom would legally relocate its home address to the United States. But is moving Broadcom’s headquarters to the United States sufficient to ease the way for that deal, and the Qualcomm buyout as well?
—Qualcomm and Apple (NADAQ: APPL) are locked in an epic legal battle that could take years to resolve. Amid escalating litigation, reports abound that Apple is designing its 2018 iPhone and iPad without Qualcomm’s LTE chips. Apple alleges in a $1 billion lawsuits that Qualcomm is gouging Apple for use of its tech and requiring Apple to pay a percentage of its iPhone revenue for use of Qualcomm patents. Qualcomm has countersued and filed several patent infringement lawsuits against Apple. How would this all get resolved in a Broadcom-Qualcomm merger?
—Qualcomm escalated its battle with Apple by filing a lawsuit in China that seeks to ban the sale and manufacture of iPhones in the country. Before the recent introduction of the iPhone 8 and X, Bloomberg estimates that China accounted for 22.5 percent of Apple’s $215.6 billion sales in its most recent financial year. China may prove to be the ultimate wild card here, so, what about China?
As Bloomberg has reported, Broadcom’s initial offer of $70 a share in cash and stock for Qualcomm would be almost a 28 percent premium over Qualcomm’s close (at $54.84) on Nov. 2, when talk of the proposed deal first surfaced. That’s low compared with Qualcomm’s share price a year ago, but would still amount to the biggest tech buyout ever.
Bloomberg estimates the pro forma valuation of the deal as roughly $130 billion, including $25 billion of debt. (Qualcomm also has $38.6 billion in available cash, although $29.4 billion of that is offshore.) That’s nearly twice the size of the tech industry’s previous record deal, when privately held Dell acquired EMC in 2015 for $67 billion.
As former Qualcomm executive Jeff Belk told me this morning, “When it’s the largest tech acquisition in history, it’s not a linear deal. It’s 3D chess. It’s really, really complex.”
If anything is certain, it’s that the Wall Street arbitragers who are trying to handicap the outcome of this deal have their work cut out for them.