Earlier this week, we reported that Broadcom board announced its best and final offer to acquire all of the outstanding shares of common stock of Qualcomm for about $121 billion. Read the details about the offer here. In response to that, Qualcomm’s board today announced that its Board of Directors has unanimously rejected the new proposal by Broadcom.
The Qualcomm Board determined that the Broadcom proposal materially undervalues Qualcomm and falls well short of the firm regulatory commitment the Board would demand given the significant downside risk of a failed transaction. However, Qualcomm has decided to have a discussion with Broadcom to see if it can address the serious deficiencies in value and certainty in its proposal.
The Qualcomm Board sent the following letter to Broadcom:
February 8, 2018
Mr. Hock Tan
President and Chief Executive Officer
1 Yishun Avenue 7
Dear Mr. Tan:
I am writing on behalf of the Board of Directors of Qualcomm Incorporated. The Board has reviewed your February 5, 2018 letter proposing to acquire Qualcomm for a combination of $60.00 in cash and $22.00 in Broadcom shares per Qualcomm share, as well as the materials filed publicly in connection with that letter. As presented, your proposal raises more questions than it answers.
The Board has unanimously determined that your amended offer materially undervalues Qualcomm and falls well short of the firm regulatory commitment the Board would demand given the significant downside risk of a failed transaction. However, the Board is committed to exploring all options for maximizing shareholder value, and so we would be prepared to meet with you to allow you to explain how you would attempt to bridge these gaps in both value and deal certainty and to better understand the significant issues that remain unaddressed in your proposal.
In the meeting, we would expect that you will be prepared to provide clear, specific and detailed answers to the questions below.
- What is the true highest price at which you would be prepared to acquire Qualcomm? Is it $82 per share or is it higher? Your current proposal is inadequate as it materially undervalues Qualcomm. Your proposal ascribes no value to our accretive NXP acquisition, no value for the expected resolution of our current licensing disputes and no value for the significant opportunity in 5G. Your proposal is inferior relative to our prospects as an independent company and is significantly below both trading and transaction multiples in our sector.
- Is Broadcom willing to commit to take whatever actions are necessary to ensure the proposed transaction closes? This is extremely important to value preservation for our shareholders. The differences in our business models expose the Company to significant customer and licensee risk between signing and closing an agreement. It is indisputable that there are significant regulatory hurdles in your proposed transaction. It is also indisputable that if Qualcomm entered into a merger agreement and, after an extended regulatory review period the transaction did not close, Qualcomm would be enormously and irreparably damaged. If you are not willing to agree to do whatever is necessary to ensure a transaction closes, we will need you to be extremely clear and specific about exactly what actions you would refuse to take, so that we can properly evaluate the risk to Qualcomm’s shareholders.
We have a number of other important questions, which we can discuss at our meeting. We will reach out to you to schedule the meeting.
Paul E. Jacobs
Chairman of the Board