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Broadcom has been interested in acquiring Qualcomm for more than a year

Mike Freeman, The San Diego Union-Tribune on

Published in Business News

Meanwhile, Broadcom's shares are surged nearly 50 percent in the past 12 months as it completed the Broadcom-Avago Technologies acquisition, paid down debt and increased revenue and profit.

Broadcom's offer represents a 28 percent premium over Qualcomm's stock price on Thursday, the day prior to news leaking about a potential offer.

A Broadcom-Qualcomm deal would not be contingent on Broadcom getting financing. The company said it expects to maintain an investment-grade debt rating and has received "highly confident" letters from investment bankers on debt issuance to fund the deal.

In addition, private equity firm Silver Lake Partners has pledged $5 billion convertible debt to jump-start financing.

Broadcom said its offer stands whether or not Qualcomm completes the pending purchase of NXP Semiconductors.

Wall Street analysts say a deal could face problems with regulators, and Qualcomm's board is likely to view it as under-estimating its potential in upcoming 5G wireless networks and the expansion of cellular technology into automotive, health care and other industries.

But Qualcomm's depressed stock price opens the door for Broadcom to win support from Qualcomm's shareholders, including institutional investors that might deem Broadcom's offer less risky than waiting for Qualcomm's disputes with Apple and antitrust regulators to be resolved.

"Qualcomm management will and should fight like hell not to be acquired," said Steven Re of Fairbanks Capital Management in Rancho Santa Fe. "But Qualcomm's management better think realistically. They are between a rock and a hard place."

Broadcom has grown through several acquisitions, and has a history of selling business units it deems nonessential. With Tan in charge, it's also known for keeping a lid on costs. Analysts estimate that it could wring out $1 billion to $2 billion in annual costs from the Qualcomm deal.

Jim McGregor of industry advisory firm Tirias Research, thinks Broadcom's offer sets up a proxy fight for control of Qualcomm's board. The company typically holds its annual shareholders meeting in the spring.

"I don't think management wants (to be acquired) and I don't think this is good for Qualcomm, but we have seen odder things happen," McGregor said. "It's kind of perfect timing. Their stock is down. A number of board members are up for election or re-election. From a strategic standpoint, Broadcom couldn't have planned this better."

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