Those that follow the Broadcom buying Qualcomm news know that Qualcomm released a letter today asking Broadcom to assume more of the merger regulatory risk
From that letter:
“We proposed a reverse termination fee of 9% of enterprise value, payable if a potential transaction is terminated other than due to a breach of the agreement by Qualcomm or our failure to obtain stockholder approval. We based this amount on recent precedent transactions, particularly Baker Hughes/Halliburton, which began as a hostile proposal, ended as a negotiated agreement and involved complex regulatory issues that ultimately resulted in termination of the transaction.”
Qualcomm also removes the ““hell or high water” commitment on the regulatory front, understanding that presuppositions of the status quo are hardly ever possible.
It’s unclear at this point what Broadcom plans for the licensing business in the interim of the transaction. A merger like this, once executed, would take a year or longer to close.
The Baker Hughes and Halliburton mentioned merger failed in 2016 because of the oil prices and antitrust enforcement.
With the Broadcom pursuit of Qualcomm one of the issues is that Qualcomm hasn’t yet completed its purchase of NXP International. Once that’s completed, analysts see overlap between NXP and Qualcomm businesses.
Qualcomm was fined last month $1.2 Bn by the EU for violating anti-monopoly laws (NYT)
While I am not part of this business transaction in any way, nor do I have any financial interest in those companies, it would be interesting to see how this proposed merger goes forward. Some readers have asked me to post a hypothetical merger model (accretion/dilution) of the transaction. I might do that if time allows me.
If you want to try out modeling, you can start with this template of the potential Apple acquisition of Disney. It is the WSP template: https://s3.amazonaws.com/wsp_sample_file/excel-templates/accretion-dilution-model-sample.xlsx
Thank you, Arav. Useful template.
How do you use TRUE/FALSE switches to create a J-curve ? The equity IRR on the transaction is based of the assumption to create a J-curve.
Than you.
Arjun
I will not start writing a hypothetical model here. Institutions pay thousands to build those models, which are approximations at best.
You can study past mergers to see how this might be modeled out. In general, you increase the amount of consideration paid for the merger to reduce accretion in EPS or increase dilution. That's something investment bankers figure out.