By Greg Roumeliotis and Sonam Rai
(Reuters) - U.S. semiconductor company Qualcomm Inc (O:QCOM) on Tuesday unveiled a sweetened $44 billion agreement to acquire NXP Semiconductors NV (O:NXPI), its most defiant move in its defense against a hostile $121 billion bid from Broadcom Ltd (O:AVGO).
The new deal puts pressure on Broadcom to decide if it will stick with a stipulation in its bid that Qualcomm does not raise its offer for NXP. It could strengthen Qualcomm's defenses because it allows its shareholders to better assess the standalone value of Qualcomm as an alternative to a deal with Broadcom.
Qualcomm shares fell 1.3 percent to $63.99, significantly below Broadcom's latest $82 per share cash-and-stock offer unveiled on Feb. 5, as investors saw the new NXP deal as increasing the chances of Qualcomm repelling Broadcom.
Broadcom said on Tuesday it was evaluating its options in response to Qualcomm's move and noted that the revised price for NXP was well beyond what Qualcomm has repeatedly characterized as "full and fair." It called the new deal a transfer of value from Qualcomm shareholders to NXP shareholders.
In an interview with Reuters, Qualcomm's presiding board director Tom Horton argued that the revised deal with NXP represented value for Qualcomm shareholders irrespective of the outcome of the takeover battle with Broadcom.
"It makes Qualcomm stronger and more profitable and diversified if there is no deal with Broadcom, and if we do decide to pursue a sale the same is true, more value would accrue to the Qualcomm shareholders," Horton said.
Qualcomm raised its offer for NXP from $110 to $127.50 per share in cash. In exchange, it received binding agreements from nine NXP stockholders that collectively own more than 28 percent of NXP’s outstanding shares to support the deal. These include hedge funds Elliott Advisors (UK) Ltd and Soroban Capital Partners LP, which had spearheaded opposition to the NXP deal.
NXP's shares rose 6 percent to $125.56. The stock had traded above the original offer price for nearly seven months, reflecting expectations among investors that Qualcomm's offer would be raised.
NXP shareholders have to tender their shares in an offer that is currently set to expire on March 5, though Qualcomm has repeatedly pushed back this deadline as it awaits clearance from China's MOFCOM, the only regulator globally needed to approved the deal that has yet to do so. The Chinese New Year holiday this month has delayed this review.
Under the new terms agreed with NXP's board, the deal with Qualcomm is contingent on 70 percent of NXP's shares being tendered, instead of the 80 percent threshold required in the earlier agreement signed in October 2016. Once this threshold is reached, Qualcomm can take over the entire company through a "second-step" transaction mechanism.
The new NXP deal came less than a week after Broadcom and Qualcomm executives met face-to-face for the first time to discuss the differences between the two sides. Qualcomm called the meeting constructive but reiterated it had several concerns over price and regulatory risk.
BOARD CHALLENGE
The acquisition of NXP will help Qualcomm to expand in the fast-growing market for chips used in automobiles and reduce its dependence on the competitive smartphone market.
The takeover battle between Qualcomm and Broadcom is at the heart of a race to consolidate the wireless technology equipment sector, as smartphone makers such as Apple Inc (O:AAPL) and Samsung Electronics Co Ltd (KS:005930) use their market dominance to negotiate lower chip prices.
Singapore-based Broadcom is mainly a manufacturer whose connectivity chips are used in products ranging from mobile phones to servers. San Diego-based Qualcomm primarily outsources the manufacturing of its chips which are used for the delivery of broadband and data, a business that would significantly benefit from the rollout of 5G wireless technology.
To put pressure on Qualcomm, Broadcom has put forward six nominees up for election at Qualcomm's March 6 shareholder meeting to replace the majority of the company's eleven-member board of directors.
Proxy advisory firm Glass Lewis on Tuesday recommended Qualcomm shareholders vote for all six director nominees Broadcom has put forward.
Last week, Institutional Shareholder Services Inc (ISS) had recommended for the election of four Broadcom nominees. While this recommendation would fall short of Broadcom's nominees winning a majority on Qualcomm's board, ISS said such a vote by Qualcomm shareholders would offer a reasonable path to a negotiated deal that would deliver value.
"ISS and Glass Lewis only influence a minority of our shareholders. They belie the fact that the Qualcomm board is doing everything it can in the furtherance of the interests of its shareholders. The ISS and Glass Lewis reports are also dated because they came out before certainty was secured on the NXP deal," Horton said.