Broadcom offers $130 billion to buy Qualcomm

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SAN DIEGO — The electronics company Broadcom Ltd. offered San Diego-based Qualcomm Inc. about $130 billion Monday in an unsolicited takeover bid, in what could become the second biggest deal in U.S. corporate history.

Qualcomm said it would think about it the offer.

Rumors of the potential deal first surfaced last week, when it was reported Broadcom would offer $70 per share in cash and stock for Qualcomm, the world’s largest maker of mobile phone chips. That $70 per share figure was confirmed today by Tam.

“This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products,” Tan said in a statement this morning. “We would not make this offer if we were not confident that our common global customers would embrace the proposed combination.”

Broadcom is incorporated and currently based in Singapore, but Tan announced last week while visiting President Donald Trump at the White House that the company would return its corporate headquarters to the U.S., using San Jose as a base.

That legal maneuver helps Broadcom avoid increased regulatory scrutiny levied on foreign companies that want to buy American corporations.

Still, the deal could invite antitrust concerns. Both companies are big players in the high-end Wi-Fi market, notes Christopher Rolland, semiconductor analyst for Susquehanna.

Buying Qualcomm would make Broadcom the third-largest chip-maker, behind Intel Corp. and Samsung Electronics Co., Bloomberg reported. The combined business would become the default provider of a set of components needed to build each of the more than a billion smartphones sold every year, according to Bloomberg.

In a statement Monday, Qualcomm said it would “assess the proposal in order to pursue the course of action that is in the best interests of Qualcomm shareholders.”

Bloomberg reported that Qualcomm “is preparing to fend off the unsolicited offer” because it undervalues the company and is an opportunistic move to buy it on the cheap. Management will recommend that shareholders reject the takeover bid, according to Bloomberg.

Qualcomm made its name inventing the 2G and 3G wireless network technology used by Verizon and Sprint. Now the bulk of its sales come from mobile chips powering the brains in smartphones and the radios that enable cellular communications.

Broadcom primarily makes chips for wired broadband communications, including modems, Wi-Fi, switches and routers.

The deal comes just as every wireless carrier in America is about to unleash its 5G technology. Unlike 4G, 3G and 2G before it, 5G will rely on wired and wireless technology working in tandem.

Because of how 5G technology will be built, wireless carriers will have to deploy small radios — essentially mini cell towers — all around the covered area. Each of those towers will need an Ethernet connection. If Broadcom and Qualcomm combine, it could market itself as an end-to-end 5G technology provider.

Qualcomm has endured a miserable 2017, mainly because of an epic standoff with Apple. Qualcomm claims Apple violated some its patents and is trying to block iPhone sales in China. Meanwhile, Apple is rumored to be building a future iPhone without Qualcomm components.

Like Qualcomm, Broadcom is a major supplier of parts of Apple products. Qualcomm and Apple have been embroiled in a court dispute over royalties.

Qualcomm last week reported a plunge in net earnings for the fourth quarter — to $168 million, or 11 cents per diluted share, compared to $1.6 billion, or $1.07 per diluted share, in the same period in 2016. For the full fiscal year, net income was $2.47 billion, or $1.65 per diluted share, compared to $5.7 billion, or $3.81 per diluted share, last year.

The impact in San Diego of the potential takeover — which would end up being the largest ever in the electronics industry — wasn’t immediately clear, but it could be tremendous. Qualcomm is one of the few major corporations with a global reach to be headquartered in a city known mainly for tourism, and smaller defense and life sciences firms.

Qualcomm is one of the region’s largest private employers, and the family of co-founder Irwin Jacobs are one of the area’s most generous philanthropists.

The only larger deal in U.S. corporate history was AOL’s $162 billion deal for CNN parent company Time Warner in 1999. The Broadcom-Qualcomm deal would be tied with Verizon’s $130 billion purchase of half Vodafone’s Verizon Wireless stake in 2013, and Dow’s $130 billion merger with DuPont in 2015.

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