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Qualcomm offers olive branch in Broadcom talks

Updated: Qualcomm has proposed a solution which it says settles everything "other than price."

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Despite pushing back against Broadcom's hostile takeover bid, Qualcomm has now proposed a revised agreement which the firm says "resolve all issues between the two companies other than price."

In November, Broadcom offered $70 per share to Qualcomm shareholders in an unsolicited acquisition bid. Despite being ramped up to $82 per share, or approximately $146 billion, this figure was unanimously rejected by Qualcomm as a "significant undervaluation."

Broadcom said this was "best and final," but after Qualcomm raised its offer to finalize the buyout of NXP Semiconductors for $127.50 per share rather than $110 in a deal worth $44 billion, this figure then degraded to $79 per share.

As the original offer was considered an undervaluation and regulatory demands were also of concern, it was not clear whether the talks would continue further.

However, it seems that Qualcomm has yet to fully close the door to further negotiation.

On Monday, Qualcomm said that Chairman of the Board Dr. Paul Jacobs has sent a letter on behalf of the US chipmaker to Hock Tan, Broadcom CEO.

The letter is a response to the meeting held between both companies on February 23, in which Qualcomm cited a number of regulatory issues, including potential antitrust problems related to Broadcom demands -- including the control of all "material decisions" related to Qualcomm's licensing business.

Broadcom has offered a "reverse termination fee" worth roughly $8 billion, or $5.40 per share, should regulators prevent the acquisition going forward. However, Qualcomm says that a regulatory limbo could cost shareholders far more.

In the letter sent to Tan, Jacobs said that Qualcomm's revisions to the draft merger agreement (.PDF) "would resolve all issues between the two companies other than price."

"The path forward does not require a "hell or high water" commitment on the regulatory front, but still provides the appropriate level of protection to Qualcomm stockholders commensurate with the high degree of regulatory risk associated with this potential transaction," Jacobs says.

Qualcomm noted that Broadcom has now agreed not to break apart or sell off just Qualcomm businesses to avoid regulatory issues, but has also proposed that Broadcom shoulder "any other remedies" that regulators may impose to see the merger through.

In addition, Qualcomm wants the reverse termination fee to be increased to nine percent of the "enterprise" value of the company, although the exact amount has not been disclosed.

Read also: Qualcomm to Broadcom: Thanks for the meeting, but regulatory risk is too high for a deal | Broadcom submits final $146 billion offer in Qualcomm takeover bid | Qualcomm buys NXP in deal valued at $47 billion, diversifies into Internet of things

"We based this amount on recent precedent transactions, particularly Baker Hughes/Halliburton, which began as a hostile proposal, ended as a negotiated agreement and involved complex regulatory issues that ultimately resulted in termination of the transaction," the company added.

While Qualcomm says these changes would create an "acceptable" level of risk for investors, the question of the firm's lucrative licensing businesses is still a sticking point.

It now appears that Broadcom will not impose restrictions that the company originally wanted on the licensing business between the signing of an agreement and closure of the deal, but Broadcom has not disclosed its future plans for this sector.

Jacobs said:

"However, you still declined to disclose any information regarding your plans to change how the licensing business would be structured and operated after closing, based on your belief that such disclosure is not permissible under antitrust law.

We do not believe that is the case and we have heard from stockholders, research analysts, and customers that you have briefed them on your plans at a high level. We continue to believe that we need visibility into those plans beyond what we are hearing in order to fully assess the antitrust risks and value implications of a transaction with Broadcom."

See also: Broadcom demanded control of licensing business in Qualcomm acquisition bid

Should Broadcom agree, Qualcomm is willing to meet again to discuss terms -- and potentially deal with the elephant in the room, which is the final purchase price.

"Broadcom reiterated in the February 23 meeting that its reduced $79 per share proposal is its best and final proposal," Qualcomm added. "The Qualcomm board is unanimous in its view that each of Broadcom's proposals, including its prior $82 per share proposal, materially undervalues Qualcomm, and the board encourages Broadcom to enter into mutual due diligence and price negotiations."

Update 17.05 GMT: Broadcom has branded the letter an "engagement theater," commenting:

"Broadcom does not believe that the process outlined by Qualcomm today is designed to lead to a prompt agreement. Qualcomm's disingenuous process defers the question of price, even after Qualcomm's Presiding Director Tom Horton last week publicly stated that the Qualcomm board views Broadcom's proposed price as "not even close."

Broadcom's proposal has never been conditioned on due diligence and Broadcom continues to be prepared to move forward immediately, without diligence. In short, there is no cause to delay the Qualcomm annual meeting.

Broadcom would be happy to provide confirmatory reverse due diligence upon an agreement on all material terms, including price, as is customary.

If the current Qualcomm board remains unwilling to genuinely engage -- and continues with "engagement theater" on this basis -- Broadcom looks forward to negotiating in good faith with the newly-elected Qualcomm board following the Qualcomm annual meeting on March 6."

Previous and related coverage

    Broadcom reveals new offer for Qualcomm in response to NXP traction

    Updated: Broadcom is not giving up the dream of acquiring Qualcomm easily.

    Qualcomm raises bid to acquire NXP Semiconductors to $44 billion

    Updated: The news is likely to be received with little warmth by Broadcom.

    Qualcomm to Broadcom: Thanks for the meeting, but regulatory risk is too high for a deal

    Qualcomm said Broadcom needs a better plan to handle the various regulatory issues that would arise via a merger.