Broadcom Wants to Remake Qualcomm's Board as it Presses for Deal - Update

By Allison Prang Features Dow Jones Newswires

Broadcom Ltd. opened the next front in its $105 billion takeover bid for Qualcomm Inc., saying Monday it plans to submit its own candidates to sit on its target's board.

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Nominees are due by the end of the week. Broadcom said it intends to propose 11 new independent directors, and would support expanding the board to reappoint three outside directors who were named within the last three years.

Broadcom didn't signal whether intends to raise its offer beyond the initial $70 a share. The company likely will do so before Qualcomm's annual shareholder meeting, expected in March, according to a person familiar with Broadcom's strategy.

In a prepared statement, Broadcom Chief Executive Hock Tan said his company has "repeatedly attempted to engage with Qualcomm, and despite stockholder and customer support for the transaction, Qualcomm has ignored those opportunities."

Qualcomm said Broadcom's proposal faces several challenges, including financing and the prospective acquirer's current domicile in Singapore. The San Diego-based company also touted its leadership in innovative markets such as automotive and next-generation cellular technologies -- an apparent shot at Broadcom's strategy of focusing on predictable markets.

"Qualcomm stockholders expect a Board that will support this innovation while evaluating objectively the full range of opportunities available to maximize value for all Qualcomm stockholders," Tom Horton, Qualcomm's presiding director, said in a prepared statement.

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Broadcom's announcement Monday isn't a surprise. Qualcomm's directors in mid-November rejected Broadcom's offer unanimously, and a person familiar with the matter had said Broadcom would consider its own directors if met with resistance.

Broadcom, which is scheduled to release fourth-quarter earnings Wednesday after the market closes, said it hopes to complete a deal on friendly terms. Still, its move to pack Qualcomm's board pushes the effort into a more aggressive phase.

"Now the clock is running," said Marcel Kahan, a law professor at New York University. "The vote can be postponed by days or weeks, but they can't drag it out forever."

Nominating directors is a common tactic used to pressure a reluctant target into talks. Seldom does it result in the election of hostile directors, as the parties usually either strike a deal, the acquirer withdraws its bid or a third party makes a competitive offer.

Broadcom's slate includes Samih Elhage, a former Nokia Corp. executive; Raul J. Fernandez, vice chairman at Monumental Sports Entertainment; Michael S. Geltzeiler, former financial chief at ADT LLC; Stephen J. Girsky, managing partner at VectoIQ; David G. Golden, managing partner at Revolution Ventures; Veronica M. Hagen, former CEO of Polymer Group Inc., later renamed AVINTIV Specialty Materials Inc.; Julie A. Hill, owner of Hill Company; John H. Kispert, managing partner at Black Diamond Ventures; Gregorio Reyes, former board chairman at Dialog Semiconductor PLC and LSI Corp.; Thomas S. Volpe, managing member of Volpe Investments LLC.; and Harry L. You, finance chief at GTY Technology Holdings Inc.

The three directors Broadcom would seek to reappoint are Mark D. McLaughlin, CEO of Palo Alto Networks Inc.; Anthony J. "Tony" Vinciquerra, chief of Sony Pictures Entertainment; and Jeffrey W. Henderson, and advisory director at Berkshire Partners LLC.

Together, Broadcom and Qualcomm would be the third-largest semiconductor supplier by revenue and a dominant maker of chips for a wide range of communications functions.

"The numbers make sense," said Mike Walkley of Canaccord Genuity Group Inc., whether or not Qualcomm completes its proposed purchase of NXP Semiconductors NV for $39 billion, which Qualcomm has said it expects to close by early next year. Even without NXP, the combination could add 40% to Broadcom's adjusted 2018 per-share earnings at the current bid of $70 a share, and a high single-digit percentage even at $100 a share, he said.

Integrating two companies the size of Broadcom and Qualcomm would be difficult enough. Beyond that, the companies have different corporate cultures and management styles.

Mr. Tan is known for buying technology leaders in established markets and slashing costs. Broadcom this year is expected to post an operating margin of 45%, according to Mr. Walkley. Qualcomm, by contrast, focuses on developing technology to extend existing markets and open new ones. Its chip division achieved an operating margin of roughly 17% in 2017.

Mr. Tan likely would try to raise Qualcomm's chip margins by lowering operating expenses including research and development, Mr. Walkley said.

Allison Prang contributed to this article

Write to Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

December 04, 2017 09:46 ET (14:46 GMT)