Qualcomm Drops ‘Hell or High Water’ Demand in Broadcom Bid (Corrected)

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By Alexei Alexis

Qualcomm Inc. said Feb. 26 that it’s willing to accept an acquisition offer from Broadcom Ltd. without a “hell or high water” clause that would bind the potential buyer to the deal no matter what regulatory issues arise.

Qualcomm previously requested the clause, which would have required the buyer to do whatever it takes to get a transaction approved, said Scott Sher, an antitrust partner at Wilson Sonsini Goodrich & Rosati. In the event that the deal doesn’t go through, the buyer would still be required to pay the full purchase price, he told Bloomberg Law.

Sher is advising Qualcomm on the deal.

Qualcomm’s latest proposal withdraws that demand and instead requests a commitment from Broadcom that it agree to any remedies that may be imposed by regulators that wouldn’t have a “material adverse effect” on the combined company. Broadcom rejected the offer Feb. 26 without specifically mentioning the regulatory aspects of the proposal.

These updated proposed terms were overshadowed Feb. 26 by unresolved price issues over which Qualcomm and Broadcom traded barbs. Broadcom has already agreed to pay Qualcomm a breakup fee of $8 billion if regulatory approval isn’t received. But until the most recent offer, Qualcomm thought the breakup terms were undefined and could still allow Broadcom to walk away from the deal, according to people familiar with the matter.

The latest offer from Qualcomm, which included a slightly higher breakup fee, would resolve that problem, the people said. From Broadcom’s perspective, the $8 billion breakup fee is still part of the deal.

The parties are still haggling over price. Broadcom recently said that $79-a-share is its “best and final” offer.

Regulatory Risk

The announcement marks a concession for Qualcomm, which has said for weeks that any deal will require strong regulatory safeguards in light of the potential antitrust risks involved. It comes amid threats by Broadcom to force the merger through a hostile takeover if talks with Qualcomm fail.

“Qualcomm’s proposed terms provide greater protection to Qualcomm shareholders, commensurate with the high degree of regulatory risk associated with this proposed transaction,” Sher said.

Qualcomm faces a possible March 6 vote by shareholders on whether to replace the chipmaker’s board with Broadcom’s nominees.

Broadcom rejected Qualcomm’s overall proposal, saying that it shows “feigned engagement” in that it defers the question of price.

“If the current Qualcomm board remains unwilling to genuinely engage — and continues with ‘engagement theater’ on this basis — Broadcom looks forward to negotiating in good faith with the newly-elected Qualcomm board following the Qualcomm annual meeting on March 6,” Broadcom said in a statement.

Qualcomm Feb. 22 sent an analysis to its shareholders written by nine antitrust scholars, including seven former regulators, raising regulatory red flags about the merger. They said the combination would likely encounter a lengthy and difficult merger process review involving numerous antitrust agencies around the world. It also will likely face national security questions from the Committee on Foreign Investment in the United States (CFIUS).

Some of the authors have worked with Qualcomm. Broadcom has played down the regulatory risks.

While Qualcomm is no longer demanding a “hell or high water” commitment, it still wants the “appropriate level of protection,” Qualcomm Chairman Paul Jacobs said in a Feb. 26 letter to Broadcom Chief Executive Officer Hock Tan.

(Corrects to reflect Qualcomm’s proposed breakup fee.)

To contact the reporter on this story: Alexei Alexis in Washington at aalexis@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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