Broadcom cuts Qualcomm offer to $117 billion after new NXP deal

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(Reuters) – Microchipmaker Broadcom Ltd (AVGO.O) cut its bid for Qualcomm Inc (QCOM.O) on Wednesday by 4 percent to $117 billion as it objected to Qualcomm’s decision to raise its own bid for NXP Semiconductors.

The move appeared to lower the chances of a negotiated deal between Broadcom and Qualcomm, setting up a showdown on March 6, when Qualcomm shareholders will elect an 11-member board and decide whether to hand control to a slate of six nominees put forward by Broadcom.

Qualcomm was pursuing a deal with NXP before Broadcom launched its own attempt to buy Qualcomm, and the NXP tie-up is seen as one way for mobile chipmaker Qualcomm to fend off Broadcom.

Broadcom said that Qualcomm’s raised bid would amount to overpaying for NXP and cut its own bid as a result.

“Qualcomm’s board acted against the best interests of its stockholders,” Broadcom said in its statement on Wednesday.

The moves raise the chances that Qualcomm will buy NXP and lowered the chances of a Broadcom-Qualcomm deal, CFRA Research analyst Scott Kessler wrote.

Broadcom also criticized Qualcomm on Wednesday for not liaising with it before raising its NXP bid, as proxy advisory firm Institutional Shareholder Services Inc had recommended.

Qualcomm shares were trading down 0.8 percent at $63.47 in early afternoon trading in New York on Wednesday, while Broadcom shares were down 0.2 percent at $249.09.

Qualcomm raised its offer for NXP from $110 to $127.50 per share in cash on Tuesday. 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 and argued for a higher price. [nL4N1QA2JG]

Broadcom’s latest $82 per share cash-and-stock offer for Qualcomm was contingent on it buying NXP at its earlier offered price of $110 per share. Broadcom said on Wednesday that if the NXP deal goes ahead at $127.50, it will reduce the cash portion of its bid for Qualcomm by $3 per share.

Qualcomm is contractually obligated to complete the NXP deal, so that acquisition could only fall apart if not enough NXP shareholders support the tender offer or China’s MOFCOM, the only regulator globally that has yet to approve the deal, blocks it.

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.

NXP shares were trading at $125.90 on Wednesday, close to the new deal price, indicating that most investors think the acquisition will go through.

Broadcom said on Wednesday other conditions of the proposed merger agreement remained unchanged, including an $8 billion breakup fee to be paid to Qualcomm should regulators thwart the deal.