- Chip maker Qualcomm is in a fight for its life, which will culminate during its March 6 shareholders meeting.
- Qualcomm's board members are fending off a hostile takeover by their rival Broadcom, which would be the largest tech merger in history.
- To fend off Broadcom's offers, Qualcomm has adopted a "poison pill" defense — basically, Qualcomm is paying more for major acquisition of its own, in the hopes of making itself less attractive to Broadcom.
- Meanwhile, Qualcomm's 34,000 worldwide employees are bracing for layoffs.
- And Apple created the conditions that caused all of this.
Qualcomm, a chip manufacturer valued on the public markets at about $93 billion, is in a very strange fight for its life right now — and employees are worried that layoffs are not far off.
Broadcom, one of Qualcomm's chief rivals, has made several bids to buy the company. But the Qualcomm board has, so far, rejected those offers. On Wednesday, Broadcom made yet another offer — however, instead of increasing the price it was willing to pay, Broadcom lowered it, making it far less likely that Broadcom will win.
Nevertheless, on March 6, 2018, shareholders will be plunked in the middle of an old-fashioned hostile takeover, in which Broadcom will be asking Qualcomm shareholders to fire six of its 11 board members and replace them with new ones it has nominated — people who would sell Qualcomm to Broadcom.
Should Broadcom prevail, even at the new lower price of $117 billion, this would be the largest technology acquisition ever.
If all that weren't drama enough, there's more. Qualcomm is in the process of buying NXP, a semiconductor company and a one-time rival. It's a binding acquisition that is awaiting one more level of regulatory approval in China, and can only fall apart if not enough shareholders want to sell. Originally, Qualcomm intended to buy up an 80% stake in NXP, offering $110/share.
So, to fend Broadcom off, Qualcomm's board pulled a "poison pill" defense, a well-known boardroom strategy to fend off a hostile takeover.
Qualcomm's board increased its offer for NXP to $127.50/share, raising the overall price of the deal to $44 billion. A big block of NXP shareholders have already agreed to selling at the higher price (because, of course). With seller interest secure, Qualcomm has agreed to proceed with its offer if it gets a mere 70% of the shares, rather than the original 80% it wanted. It will buy more shares later, it said.
Broadcom believes that Qualcomm is overpaying for NXP, and lowered its price to penalize the board and convince shareholders to take its deal before it walks away entirely. Qualcomm's board, for its part, wants Broadcom to walk away. It has been arguing that Broadcom hasn't been offering enough of a price to begin with. It board is promising that other changes, including the NXP acquisition and a cost-reduction program, will grow the company — and its share price — again.
Apple kicked off all this boardroom drama
And all of this started in 2017, thanks to Apple. Qualcomm makes chips used by smartphones, but it also owns some critical wireless licenses that pretty much all device makers have to use. Apple, however, has started building many of its own chips, and it grew fed up with having to pay Qualcomm about $2 billion a year in royalty payments. The FCC started to investigate Qualcomm's dealings with Apple and Apple suppliers and shortly after, Apple filed a lawsuit.
The whole story is more complex than that, according to Bloomberg. It involves an alleged secret meeting between Apple CEO Tim Cook and Samsung's Vice Chairman Jay Lee at a conference, followed by South Korea ratcheting up antitrust investigations into Qualcomm. Lee was later convincted of bribery during a South Korean anticorruption crackdown and there was even more potential skullduggery besides. Cue the dramatic music.
In any case, the loss of Apple as a customer, coupled with its lawsuit and the potential disruption of Qualcomm's licensing model scared investors — as events like that are wont to do. Qualcomm's stock crashed, giving Broadcom an opening to make an offer. With Qualcomm already in the process of buying NXP at the time, Broadcom saw a chance to swoop in and grab two major competitors at once.
Although that deal looks less likely now, and all of this sounds like an Aaron Sorkin movie, there is a dark side: layoffs for Qualcomm employees.
In January, in the midst of all this drama, Qualcomm's board promised its shareholders that it would keep them happy by boosting profits, driven in part by a new $1 billion cost reduction program.
Such programs almost always include layoffs.
Indeed, Qualcomm employees are already getting nervous about headcount reductions: Qualcomm President Christiano Amon told employees at a question-and-answer session that layoffs are coming, according to anonymous tipsters on The Layoff.com.
Qualcomm employs nearly 34,000 worldwide, with more than 13,000 of them based in its San Diego headquarters the San Diego Tribute reports. Employees fear that layoffs could be coming now in a matter of weeks.
Qualcomm did not immediately reply to a request for comment.
