Broadcom’s risky bet

Is the chip-maker overreaching?

The chipmaker’s proposed $130bn takeover of rival Qualcomm would be the tech industry’s biggest ever deal, says Alice Gråhns.

A year ago, Qualcomm’s chief executive, Steve Mollenkopf, felt on top of the world, say Tim Bradshaw, Richard Waters and James Fontanella-Khan in the Financial Times. The San Diego-based chipmaker was set to acquire rival NXP. And a wave of lucrative smartphone licensing deals had just become available in China, the world’s largest mobile market.

But in January this year, “Apple struck”. The tech giant, one of Qualcomm’s largest customers, “hit it with the first blow in what would become a flurry of litigation” and regulatory enquiries relating to pricing and alleged anti-competitive behaviour. By September, Qualcomm had lost a quarter of its value. Then, this week, the firm was presented with another opportunity to challenge Intel and Samsung as the world’s top chipmaker, “but not in the manner Mollenkopf would have liked”. He received an unsolicited $130bn bid from rival Broadcom.

By making this offer of cash, shares and assumed debt, Broadcom is “essentially making two very large gambles”, says Dan Gallagher in The Wall Street Journal. One is that it can settle Qualcomm’s “myriad legal battles” with regulators and Apple. The other is that it can “either quickly close Qualcomm’s pending acquisition of NXP or confidently let the deal go”. In fact, “neither are simple options”.

Then there’s the “sheer scale” of the deal, says Richard Beales on Breakingviews. The bid will require almost $90bn of cash. The new group’s total debt load would be over $100bn. That’s four or five times the $23bn in combined earnings before interest, tax, depreciation and amortisation (Ebitda) Broadcom is pencilling in, including cost savings. Nevertheless, Hock Tan, Broadcom’s CEO, is “an experienced dealmaker with a record of bringing debt down quickly after acquisitions”. And he promised that the Singapore-domiciled Broadcom will move to the US, which gets around a regulatory hurdle: US authorities’ review of a foreign acquirer.

That was a “smart” move, but it doesn’t rule out an antitrust review, says Lex in the FT. Still, it bodes well that “there is little overlap” in the firms. The current offer may not be enough to secure the takeover, says Gallagher. Qualcomm “can rightfully argue it’s worth more” than $70 a share in the long term, given the impending advent of 5G wireless technology and the potential in the NXP deal. But after months of turbulence, its “tired shareholders won’t need much more motivation to get out of the race now”.

A bumpy ride for Next

Trading is “extremely volatile”, according to high-street retailer Next. But that’s “a description that also applies to the share price”, says Nils Pratley in The Guardian. When the chief executive, Simon Wolfson, sounded “mildly cheerful” about sales in September, Next’s shares jumped 10%. Last week “he joined the rest of the retail brigade in grumbling about the warm October” and they fell 9%.

Weather has always been a key factor for fashion, “but the extent of the volatility retailers suffer these days is new”, says Jim Armitage in The Evening Standard. Instead of buying on our weekly trip to the high street, we “shop erratically online”, where other temptations such as Netflix, Amazon and Spotify vie for our wallets. Tracking what we’ll spend on fashion after that outlay has also become “increasingly unpredictable”.

To compete, high-street chains have to offer something different – witness Debenhams’ new beauty services and the appearances of in-store cafés and live events. “Next [has] fallen behind on such innovations, making its stores feel increasingly troubled”.

It wasn’t a total disaster, says Andrea Felsted in Bloomberg Gadfly. Full-price sales growth accelerated in the three months to 29 October, compared with the first and second quarters. And the report is only “a prelude to the… Christmas and New Year season”. Don’t jump to conclusions “ahead of the so-called golden quarter”.

City talk

• Two years into running Standard Chartered, “the [Bill] Winters thrill-o-meter is still to perk up”, says Alistair Osborne in The Times. When he took over in 2015, “his main job was buttoning up a bank that his predecessor Peter Sands had let rip”. Two years later, how has he done? Not especially well, judging by the minuscule rise in the share price. Investors are also irritated by Winters’ suspension of the dividend. But given glimmers of progress in the turnaround plan, which investors appear to have overlooked, and Standard’s solid capital cushion, it should resume payouts. “It’s about time Winters gave investors something to sing about.”

• Newspaper group Johnston Press, which owns The Scotsman newspaper, has fallen on hard times, says Lex in the FT. Sales have shrunk from £532m to £213m over a decade and the shares are down by 97% in three years. Now, Norwegian shareholder activist Christen Ager-Hanssen, who owns 20% of the stock, wants to parachute Alex Salmond, former leader of the Scottish National Party, into the board. Big mistake. Salmond wants the paper to be “pro-Scotland”, which “presumably means pro-SNP”. With the party already dominating Holyrood, “Scotland does not need a McPravda”.

• “Did the board of the London Stock Exchange [LSE] demand that its chief executive quit against his wishes?” asks Nils Pratley in The Guardian. A fortnight after the LSE announced that Xavier Rolet will leave at the end of next year, “nobody wants to speak clearly”. Now the Children’s Investment Fund, one of LSE’s biggest shareholders, claims that “Rolet has been hustled unhappily towards the exit under the guise of ‘succession planning’”. Rolet’s nine years at the group have been a success, so why is he going? Investors “deserve better than the LSE’s lofty obfuscation”.

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