Broadcom proposes record-breaking $130 billion bid for rival Qualcomm

Chipmaker Broadcom has made an unsolicited bid to buy rival Qualcomm for $130 billion. If the deal is accepted it will be the biggest ever takeover in the technology sector, following a run of billion-dollar consolidation deals in the semiconductor industry.

Broadcom president and CEO Hock Tan said the bid is “compelling for stockholders and stakeholders in both companies,” with the combined company able to operate at a larger scale across more product ranges. “We would not make this offer if we were not confident that our common global customers would embrace the proposed combination,” said Tan in a press statement.

Broadcom is offering a combination cash-and-stock deal of $70 per share for Qualcomm, representing a 28 percent premium over the closing price of Qualcomm’s stock on November 2nd. The $130 billion offer includes $25 billion in assumed debt.

If Tan can convince Qualcomm’s board of the deal’s merits, the new firm would become the world’s third-largest chipmaker, behind Intel and Samsung. The bid has been carefully timed. Broadcom’s shares have risen 60 percent over the past year, while Qualcomm’s have faltered as the company’s revenues are threatened by a legal battle with Apple over alleged anti-competitive behavior. As of last Friday, Qualcomm’s market capitalization was $91 billion while Broadcom’s stood at $112 billion. The share price of both firms rose last week as rumors of the bid spread.

The proposed deal is a significant milestone for the $300 billion semiconductor industry, which has been gripped in recent years by a mania of mergers and acquisitions. These include Softbank’s $31 billion purchase of chip designer ARM, Intel’s $16.7 billion acquisition of Altera, and an ongoing attempt by Qualcomm itself to buy NXP Semiconductors for $39 billion. These moves have been motivated by high-level shifts in modern tech. Computing power has migrated from PCs to smartphones and, while faster mobile data networks promise to bring more internet-connected devices online — from self-driving cars to smart washing machines.

Broadcom’s bid for Qualcomm seems intended to plug a gap in the former’s product portfolio. The California-based Broadcom provides designs for Wi-Fi and Bluetooth chips, as well as industrial infrastructure products, but is missing hardware that can take advantage of the spread of 4G and 5G networks. “Broadcom needs LTE and 5G capability that they don’t have today,” said Moor Insights & Strategy analyst Patrick Moorhead told the Financial Times. “That’s what this comes down to. What comes with it, though, is a ton of complexity.”

That complexity includes Qualcomm’s legal troubles and the chipmaker’s bid to buy NXP Semiconductors. That deal is undergoing regulatory scrutiny in Europe as well as objections from NXP shareholders, who say the company has been undervalued. On top of this, if Qualcomm does accept Broadcom’s offer, the deal would almost certainly attract the attention of America’s own regulators. Offering the money is only the first step.