Q’comm Rejects B’com Board, But Analysts Bullish

　　Qualcomm officially rejected Broadcom’s proposed 11-director board, setting a showdown on the semiconductor industry’s largest merger to date for the Qualcomm annual stockholders’ meeting March 6.

　　While Qualcomm remains adamantly against the deal, Wall Street analysts are already crunching the numbers. They are generally bullish on the deal and on Broadcom after a strong quarterly report earlier this month.

　　In a press statement, Qualcomm said the board members proposed by Broadcom and its private equity partner, Silver Lake, “are inherently conflicted and would not bring incremental skills or expertise to the Qualcomm board.” Broadcom’s initial $70/share bid “dramatically undervalues Qualcomm and is not actionable due to its significant regulatory uncertainty, which may not be resolved for 18 months, if ever,” it added.

　　In an SEC filing it proposed continuing its current board of 11 with nine outside directors including a former chairman of American Airlines, a former U.S. Ambassador to China, a former Secretary of State in Spain and chief executive of Palo Alto Networks. Qualcomm CEO Steve Mollenkopf and former CEO Paul Jacobs, who chairs the board, would continue as directors.

　　If Broadcom fails to convince shareholders to vote for its proposed board, it is expected to increase its bid to $77/share, according to a December 7 note from Canaccord Genuity financial analysts. It calculated generally positive scenarios of bids at five levels ranging up to $100/share.

　　The analysts estimated the combined company would generate $56 billion in revenues and $14.8 billion in profits in fiscal year 2018 if the deal includes Qualcomm’s proposed acquisition of NXP. Without NXP, it forecast 2018 combined revenues of $46 billion and profits of $13.6 billion.

　　In either case, it assumed cost reductions of $750 million in 2018 and $1.5 billion in 2019. It also assumed Qualcomm would make $500 million in cuts at NXP if that deal is approved.

　　“There is the potential for Broadcom to help settle licensing disputes with Apple in a more timely manner than Qualcomm might, given Broadcom’s strong relationship with Apple, and…the very strong position held by Broadcom's switching/routing chipset business with key vendors including Cisco could prove an important beachhead in the datacenter market for Qualcomm's new ARM-based server offerings,” it said.

　　Separately, Morgan Stanley issued a Dec. 21 report noting among other items that Broadcom has an emerging ASIC business in machine learning it expects could be “approaching $500 million in revenue in the next 2-3 years.” Morgan Staley also acts as an advisor to Broadcom in its move to acquire Qualcomm.