Indicating that further discussion could lead to a merger agreement, Qualcomm has passed to Broadcom a “mark-up” to a Broadcom proposal that, Qualcomm believes, could resolve all of its issues, save for the price.
Qualcomm’s revision to Broadcom follows a second meeting between the companies that was held on February 23. That meeting was held in the wake of a revised offering from Broadcom of $79 per share ($57 in cash and $22 in Broadcom shares), down from what it had already termed its “best and final” offer of $82 per share ($60 per share in cash and $22 in Broadcom stock).
“The Qualcomm Board believes the meeting led to further progress toward a possible negotiated transaction on key issues other than price,” Qualcomm said in an announcement that included a letter from the Qualcomm board to Broadcom CEO Hock Tan.
Update: Qualcomm wants Broadcom to raise its offer by at least 15%, to more than $90 per share, the Financial Times reported, citing people involved in the talks.
As for that path forward, Qualcomm is seeking more talks and for Broadcom to engage in mutual due diligence and price negotiation, reiterating a position that Broadcom’s latest offer “materially undervalues” Qualcomm.
Qualcomm believes that its mark-up of Broadcom’s draft merger agreement addresses some issues it has outside of price, including mitigation of what it views as a high degree of regulatory risk, as well as concerns about uncertainty the deal brings to Qualcomm’s licensing business.
“The Board remains highly confident in Qualcomm’s ability to achieve the fiscal year 2019 financial targets we have previously disclosed, through the execution of our growth strategy, an increased focus on operational discipline, and resolution of the customer disputes in our licensing business,” it explained in the letter.
With respect to reducing regulatory risk, Qualcomm is proposing a reverse termination fee of 9% of enterprise value, “payable if a potential transaction is terminated other than due to a breach of the agreement by Qualcomm or our failure to obtain stockholder approval.”
As for next steps, Qualcomm said it would want Broadcom to finalize non-price terms, welcoming Broadcom’s review of the mark-up, and to execute a non-disclose agreement and “begin bilateral due diligence.”
Qualcomm also the two sides to agree on an approach to provide more info on the licensing business, noting that Broadcom has repeatedly declined to disclose its plan to change Qualcomm’s licensing business under the belief that such a disclosure could pose issues under antitrust laws.
“Although we believe Broadcom is free to disclose this information, we are willing to jointly select a law firm with antitrust expertise that you would fully brief on your licensing plans,” Qualcomm said. “This firm would then provide Qualcomm the information which it considers permissible under antitrust law."
Qualcomm also wants to arrange a meeting focused on the deal’s price.
Update: Broadcom’s issued its response Monday, holding that Qualcomm has presented a “disingenuous process” that, it believes, won’t lead to a prompt agreement but is instead tantamount to “engagement theater.”
“Broadcom believes Qualcomm's sudden request to enter into an NDA is a result of Qualcomm finally beginning to recognize the will of its stockholders,” Broadcom said, adding that it’s ready to negotiate “on terms that are realistic for both parties and their respective shareholders.”
“Broadcom's proposal has never been conditioned on due diligence and Broadcom continues to be prepared to move forward immediately, without diligence,” Broadcom said, adding that it is still urging Qualcomm shareholders to vote for all six Broadcom nominees as a show of support for the Broadcom proposal.
Update (Feb. 26 at 6:01 p.m. ET): Qualcomm didn’t take to well to Broadcom’s response, issuing another statement today claiming that Broadcom made “misleading comments” characterizing the engagement activities of the companies.
"The latest statement issued by Broadcom is disingenuous and clearly intended to create a false impression about Qualcomm's level of engagement,” Qualcomm said. “In fact, Qualcomm has repeatedly attempted to engage with Broadcom on issues including price, including at meetings on February 14 and February 23. In each of those meetings, Broadcom has refused to engage on price.”
Further, Qualcomm said the “ball is in Broadcom’s court” about further engagement, and that Broadcom’s statement about Qualcomm considering moving the date of its annual meeting is false.