Recently, Broadcom has once again made a bold move by signaling to Qualcomm’s shareholders that it is considering raising its acquisition offer. Currently, 78.01% of Qualcomm’s shares are held by institutional investors, making them a key target for any takeover attempt.
The early announcement of Broadcom’s interest in acquiring Qualcomm could bring several advantages. First, it may lead to a rise in Broadcom’s stock price, which in turn can improve the company's access to financing and strengthen its future valuation. Additionally, this strategy helps Broadcom gain support from major shareholders who have significant influence over such decisions.
Qualcomm's institutional shareholders have shown some openness to Broadcom’s bid, with an inclination to accept a larger portion of Broadcom stock in the new offer. However, no official details about the revised terms have been publicly disclosed yet.
Broadcom is expected to nominate a slate of new directors for the upcoming shareholder meeting on March 6, 2018. This move could help secure votes in favor of the acquisition, as the new board members may be more sympathetic to Broadcom’s vision.
In the ongoing battle for Qualcomm, CEO Hock Tan (often referred to as Chen Fuyang) has taken a hands-on approach, disregarding traditional financial advisors and legal counsel. He believes that direct engagement yields better results, a philosophy he has followed throughout his career.
Broadcom has already begun reaching out to Qualcomm’s institutional shareholders, indicating its intention to increase the offer price. According to recent 13F filings, these institutions hold a large portion of Qualcomm’s stock, including major players like Blackstone, American Funds, Fidelity International, State Street Bank, and Wellington Management. Their recent selling activity suggests they are closely watching the situation.
The core of Broadcom’s new proposal is to offer more shares rather than cash, in hopes of securing broader institutional support. After the initial $70 per share offer was rejected, Broadcom is now focusing on strengthening its cash position through corporate bonds.
Broadcom understands that announcing the acquisition early can boost its own stock price, which has already risen over 1600% in the past eight years. A higher stock price not only improves credit availability but also increases the potential value of future offers.
Initial feedback from institutional shareholders indicates that they are open to accepting a higher percentage of Broadcom stock in the next offer. It is likely that the next bid will include 10% more Broadcom shares than the original proposal.
Broadcom’s current plan involves proposing a group of new directors to the Qualcomm board at the March 2018 shareholder meeting, aiming to gain majority support for the acquisition.
There are signs that Broadcom is pressuring the Qualcomm board to reconsider its stance. In 2016, Hock Tan personally met with Qualcomm’s board to discuss the deal, but the offer was rejected. Now, by nominating new board members, Broadcom is trying to push the existing directors to take the next offer more seriously.
Hock Tan, known for his direct and hands-on management style, prefers to handle deals himself rather than rely on external advisors. With extensive experience in M&A, he is accustomed to taking control of every detail. If successful, he may restructure Qualcomm, potentially divesting non-core assets or streamlining operations, similar to what happened after Avago acquired Broadcom.
However, Broadcom’s efforts to replace the Qualcomm board may face resistance. The current board includes younger members, with Paul Jacobs, the executive chairman, being the son of Qualcomm’s founder. This could complicate matters, especially if emotional ties outweigh economic logic.
In conclusion, Broadcom’s aggressive strategy, combined with its personal approach from the CEO, provides shareholders with valuable insight into the acquisition process. While the outcome remains uncertain, it seems likely that institutional investors holding a large stake in Qualcomm may accept an offer around $80 per share, with a higher percentage of Broadcom stock than initially proposed.
If the current Qualcomm board continues to resist, Broadcom could escalate the offer, potentially leading to a hostile takeover. The final decision will ultimately rest with the shareholders, who will weigh both financial and strategic factors before deciding their next move.
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