Qualcomm has sent a letter to stockholders criticizing Broadcom's amended deal which reveals a potential antitrust issue related to the control of the firm's licensing business.
On Thursday, the US chipmaker published a letter sent to investors, which criticized Broadcom's latest offering as an "inadequate proposal even worse."
Broadcom's hostile takeover efforts, which first began back in November, have been rejected again and again. The tech giant originally offered $130 billion to take over Qualcomm, a price which was firmly rejected as a "significant undervaluation."
The valuation was increased to $146 billion, equating to $82 per share, made up of $60 in cash and $22 in Broadcom stock.
This, too, was not nearly enough to satisfy Qualcomm.
Under the terms of the deal, Qualcomm was also required to either wrap up its intended acquisition of NXP Semiconductors at its original price of $110 per share or fully withdraw.
In response, Qualcomm recently bumped up its offer to purchase NXP for $127.50 per share, which was approved by both boards of directors.
Broadcom, naturally, was not impressed, and only 24 hours later revealed a revised deal in light of the change in the NXP negotiations.
The new offer has been revised to $79 per Qualcomm share, $57 in cash and $22 in Broadcom stock, which is a lower price Broadcom has justified by claiming the boosted NXP price has "transferred $4.10 per Qualcomm share (or $6.2 billion of value) from Qualcomm stockholders to NXP stockholders."
In a letter sent to shareholders on Thursday, Qualcomm said that the company is "highly confident" that future business plans will maximize value for investors, while Broadcom's intentions are nothing more than "inadequate."
"We remain open to continued discussions if a suitable proposal is presented," Qualcomm added. "To date, no such proposal has been made."
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"By lowering its proposal to $79 per share, Broadcom has made an inadequate proposal even worse despite the indisputable increase in value and certainty that Qualcomm stockholders will receive from the compelling and highly accretive acquisition of NXP," the company added. "Importantly, Broadcom has refused and continues to refuse to engage with Qualcomm on price."
An interesting snippet in the letter mentions Broadcom's wishes not only to elect its own selected members to the board but also the firm's wishes to control "all material decisions" relating to Qualcomm's licensing business, which has annual revenues beyond $7 billion.
If Broadcom gained full control over this lucrative slice of the pie, Qualcomm claims this would cause not only regulatory delay but would not be allowed under antitrust laws.
Broadcom has offered to pay a reverse termination fee of up to $8 billion -- or $5.40 per share -- to push the acquisition through. Should regulators prevent the merger from occurring, Broadcom would cover the bill -- but should uncertainty impact Qualcomm's business or share price in the interim, this is Qualcomm's to bear.
In addition, the letter claims that "Broadcom was unwilling to agree to commitments that could be expected to be required by the FTC, European Commission, MOFCOM, and other government regulatory bodies," which has likely not instilled much confidence in the regulatory side of discussions.
"We believe Qualcomm's experienced board is best qualified to evaluate all opportunities to maximize value for stockholders -- whether through continued execution of our growth strategy or by selling the company," Qualcomm concludes. "New directors would not change our openness to a transaction that makes sense for our stockholders, but would lower the overall quality of the board at a critical time for Qualcomm."