Last week, Apple announced that it would be moving forward with the production of its iPhones and iPads without its longtime microchip partner, Qualcomm. This week, semiconductor giant Broadcom has officially offered to purchase its rival for about $130 billion. The proposed deal comes in the midst of an intense legal battle between Qualcomm and Apple, in which Apple is accusing the chip manufacturer of charging overly expensive royalties and requiring the tech company to pay a percentage of its iPhone revenue to Qualcomm as a licensing fee in return for the use of its patents. On the other hand, Broadcom CEO Hock Tan was at the White House last week to announce the company’s relocation from Singapore to the United States, which could be huge because it allows the company to negotiate deals without having to be reviewed by the Committee of Foreign Investment. Nevertheless, cell phone giants T-Mobile and Sprint were forced to halt merger conversations due to antitrust concerns, which could provide some foreshadowing into what might happen when the Department of Justice looks into Broadcom’s offer.
The massive deal would go down as the largest-ever takeover in the technology industry. By purchasing Qualcomm, Broadcom would become the world’s third-largest manufacturer of chips and other smartphone components, trailing only Intel and Samsung. Tan commented on the state of Qualcomm’s stockholders if the deal were to go through, saying that it “provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company.” He is referring to the $130 billion proposal that, when all is said and done, will pay out $60 in cash and $10 in Broadcom shares for each share of Qualcomm stock. If you’re wondering why the math does not add up, it is because the deal would be worth around $103 billion, while the remaining $25+ billion represents net debt.
Regardless of the benefits, a merger of the fourth and sixth largest semiconductor companies in the world is going to be highly scrutinized by the Department of Justice. Tan also made it clear that Broadcom would not have pursued the potential buyout if it wasn’t certain that its common customers would “embrace the proposed combination.” Broadcom announced that if the deal were to go through, it would expect a combined annual revenue of about $51 billion.