Broadcom Proposal : Did Paul Jacobs Ask A Better Value For Qualcomm?

Qualcomm, on record, on 13 November rejected the $130 billion acquisition proposal of Broadcom. The company had said its Board of Directors are unanimously rejects the offer. However, it looks like Chairman Paul Jacobs is not happy with the offer and slyly hinted that Broadcom proposal of Qualcomm is ‘undervalued’.

“It is the Board’s unanimous belief that Broadcom proposal significantly undervalues Qualcomm relative to the Company’s leadership position in mobile technology and our future growth prospects,” said Paul Jacobs, Executive Chairman and Chairman of the Board of Qualcomm Incorporated.

This very statement by Jacobs raise many a questions. By stating Broadcom proposal ‘undervalues’ Qualcomm, the Chairman, it seems asking for a better value.

And he is not the only one to convey that, the company’s Presiding Director also said the same.

“The Board and Management are singularly focused on driving value for Qualcomm’s shareholders. After a comprehensive review, conducted in consultation with our financial and legal advisors, the Board has concluded that Broadcom’s proposal dramatically undervalues Qualcomm and comes with significant regulatory uncertainty.  We are highly confident that the strategy Steve and his team are executing on provides far superior value to Qualcomm shareholders than the proposed offer,” said Tom Horton, Presiding Director for Qualcomm Incorporated.

And, perhaps, Broadcom also sensed it.

Immediately after Qualcomm rejected its proposal, Broadcom in a statement said it is committed for this acquisition and the semiconductor firm’s CEO Hock Tan said even Qualcomm’s shareholders are interested and have expressed their eagerness for the deal.

“Many (shareholders) have expressed to us their desire that Qualcomm meet with us to discuss our proposal,” Tan said in a statement.

Broadcom, the US-based semiconductor firm, last week, had shown interest to buy the Snapdragon maker at a value of $70 per share in the acquisition proposal that would consist of $60 in cash and $10 per share in Broadcom shares.

Putting his foot down for this deal Broadcom said this transaction will create a strong, global company with an impressive portfolio of industry-leading technologies and products.

“We have received positive feedback from key customers about this combination. We continue to believe our proposal represents the most attractive, value-enhancing alternative available to Qualcomm stockholders and we are encouraged by their reaction,” said Tan.

While Qualcomm Chairman’s message gives a clear indication of a higher price, analysts in the industry believe Broadcom could increase its bid by another $20 billion or $150 billion in total.

Why the Qualcomm deal makes sense for Broadcom is the fact that the semiconductor firm claims it can boost Qualcomm’s profitability by 30% within a year.

Hock Tan has already told analysts that there is a scope of cutting Qualcomm’s expense by $3 billion which would, by simple math, ups the profitability.

Broadcom is also looking at meeting the Qualcomm Board of Directors and management team to take this up and reach a positive conclusion.

“It remains our strong preference to engage cooperatively with Qualcomm’s Board of Directors and management team,” emphasizes Broadcom CEO Tan.

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