Qualcomm Woos Shareholders With Promise of Earnings Boost

(Bloomberg) -- Qualcomm Inc. launched its public defense against the $105 billion hostile takeover attempt by Broadcom Ltd, asking shareholders to have confidence in management’s strategy and push aside the suitor.

In a letter to shareholders Tuesday, the chipmaker asked them to re-elect the existing board at its annual meeting on March 6. Broadcom has introduced its own slate of board candidates in an effort to consummate what would be the biggest ever technology industry deal.

Persuading shareholders that efforts to expand into new areas such as computing and restore a licensing business beset by legal challenges will pay off is crucial to Qualcomm’s ability to survive as an independent company. The San Diego, California-based company is also arguing that Broadcom’s bid will struggle to pass antitrust scrutiny.

Qualcomm said it aims to post adjusted earnings per share of $6.75 to $7.50 in fiscal 2019 while continuing its current cost-cutting plan. At the high end of that range, profit would be twice what analysts are currently projecting. Management also announced today that it if can’t deliver the “value creation” of its pending $47 billion acquisition of NXP Semiconductors NV it will conduct a “large share repurchase.” The company said it expects to successfully defend its licensing program in litigation with Apple Inc.

“Qualcomm has significant business momentum and the right strategy to create both near-term and long-term stockholder value -- far greater than Broadcom’s dramatically undervalued proposal,” according to the letter. “No matter how you look at it, Broadcom’s proposal is not worthy of discussion from a value perspective.”

‘Deteriorating Profitability’

Broadcom fired back in a statement, saying Qualcomm’s effort to remain a standalone company fails to address its fundamental business challenges.

“Qualcomm management has repeatedly overpromised and under-delivered since the announcement of its ‘strategic realignment plan’ in 2015, resulting in an inability to meet financial targets as well as deteriorating profitability and destruction of stockholder value,” Broadcom said. “It is important that Qualcomm engage with us so that Qualcomm stockholders can realize the significant value that Broadcom is offering.”

Broadcom didn’t anticipate increasing its $70-a-share offer until closer to Qualcomm’s board meeting in March, people familiar with the matter said last month. Qualcomm rose 4.3 percent to $68.21 at 3:06 p.m. Tuesday in New York.

Qualcomm’s industry-leading phone modem chip business has made it one of the most cash-rich in the semiconductor industry. The company said it now has increased flexibility in how it uses its more than $30 billion in cash and equivalents, most of which is held overseas. If the NXP purchase doesn’t go through, new U.S. tax regulations will allow it to repatriate that horde at a lower rate, making a large reduction in its outstanding shares possible. The company has a market capitalization of $101 billion.

Qualcomm’s letter follows a change in the company’s severance plan that guarantees payouts to most employees who exit under certain circumstances after a majority change in the board or an acquisition.

--With assistance from Ian King

To contact the reporter on this story: Alex Barinka in New York at abarinka2@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Molly Schuetz, Andrew Pollack

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