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The Real Reason Broadcom Returned To The US: To Launch A Hostile $100BN Bid For Qualcomm

One day after Broadcom surprised markets, and the US public, when the $100 billion Singapore company announced it would legally relocated to the US, Bloomberg and the WSJ report that Broadcom is considering a $100 billion deal for Qualcomm. The two are linked.

As a reminder, on Thursday, Broadcom - which manufactures communications chips around the world - said it would relocate its legal address to Delaware once shareholders approve the move, bringing $20 billion in annual revenue back to the U.S. The move would allow Broadcom to avoid a cumbersome federal review process, while Donald Trump, who tied the Broadcom announcement with the release of congressional Republicans’ tax reform proposal (which in addition to slashing corporate rates, would also makes it easier for companies to deduct foreign taxes), boasted that the redomiciling was a sign of corporate approval of the Trump tax reform.

The company credits the GOP plan with making it easier to do business in the U.S. “America is once again the best place to lead a business with a global footprint,” Broadcom CEO Hock Tan said.

 

However, Broadcom’s move to the U.S. will take place regardless of whether the Republican plan passes, the company said.

One day later, we find that Broadcom's decision to "return to the US" had nothing to do with any seal, either approving or disapproving, of Trump's tax plan, of any other political statement of the ongoing tax process in Congress, but had far simpler, and more ulterior motives.

As both Bloomberg and the WSJ report, Broadcom is considering an unsolicited bid of more than $100 billion for Qualcomm - which has had a falling out with Apple in recent months  - in what would be the biggest-ever takeover of a chipmaker.

Broadcom is speaking to advisers about the potential deal, said the people, who asked not to be identified because talks are private. The offer of about $70 a share would include cash and stock and is likely to be made in the coming days, the people said. A final decision on whether to proceed has not been made, they said.

Naturally, Qualcomm shares soared higher on the news, surging as much as 19% in New York in their biggest intraday move since October 2008. They traded up 12 percent at 2:23 p.m., valuing the company at $91 billion. Broadcom rose 4.7 percent, for a market valuation of $111 billion.

As Bloomberg also notes, Broadcom Chief Executive Officer Hock Tan is a voracious acquirer, and he’s played a key role in a wave of consolidation engulfing the $300 billion semiconductor industry over the last three years.

Broadcom, created in 2016 when Avago Technologies Ltd. acquired then-Broadcom Corp. for $37 billion, has built itself from a former division of Hewlett Packard into one of the industry’s largest chipmakers via a string of purchases. Tan has said he intends to seek more deals, a strategy that could be limited by opposition from U.S. regulators.

However, there is just one problem: if Broadcom wanted to acquire Qualcomm, it would have been blocked, for the same reason the Trump administration blocked a Chinese-backed buyer from acquiring Lattice Semiconductor in September. As we said then:

Trump’s move builds on years of U.S. opposition to China’s efforts to bolster its chip industry by buying American technology. China, the world’s largest chip market, has been on the hunt for acquisitions in the field as it looks to build a domestic supply and rely less heavily on imports, as the $300 billion global semiconductor industry undergoes its biggest wave of consolidation. U.S. officials worry that China’s investment push could threaten the competitiveness of American industry and give Beijing access to cutting-edge technology with commercial and military applications.

And, as far as Trump is concerned, Singapore "is" China, which is also why any offshore-based acquisition of Qualcomm would have crashed and burned. But not if the "foreign" acquirer first moved their headquarters to the US... which is what Broadcom did yesterday.

So here is the quid pro quo summarized: with Broadcom agreeing to be a Delaware corp, and send over $20 billion in revenue annually to the US, paying US taxes on billionf in net income, this would only work if the Trump admin greenlights the Qualcomm transaction. And since Broadcom is now "American", there is no reason to kill the deal.

Of course, there is still a possibility that anti-trust kills the deal, in which case we assume that it will take days, if not hours, for Broadcom to announce it is just kidding, and move right back to Singapore, crushing Trump's delusion that his tax proposal had anything to do with Broadcom's decision to return to the US.

Finally, should the deal go through, the synergies between the 15,700-worker Broadcom and the 33,800-strong Qualcomm, would be massive, making mass, M&A-driven layoffs great again...