Proxy advisory firm ISS says Qualcomm should negotiate sale to Broadcom

(Reuters) – U.S. semiconductor company Qualcomm Inc should try to negotiate a sale to Broadcom Ltd following the latter’s sweetened $121 billion offer, proxy advisory firm Institutional Shareholder Services Inc (ISS) said.

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Qualcomm has been seeking to walk a fine line between resisting Broadcom’s acquisition approach, which it says undervalues it and is fraught with regulatory risks, and demonstrating to shareholders and proxy advisory firms such as ISS that it is willing to engage to secure a better deal if possible.

In a report published late on Friday, ISS recommended to Qualcomm shareholders that they vote for four out of the six board director nominees that Broadcom has put forward for election at Qualcomm’s shareholder meeting on March 6.

While this recommendation would fall short of Broadcom’s nominees winning a majority on Qualcomm’s 11-member board, ISS said such a vote by Qualcomm shareholders would offer a reasonable path to a negotiated deal that would deliver value.

“The tenor of (Qualcomm‘s) engagement leading up to the present raises questions as to whether the incumbent (Qualcomm) board is committed to playing its part in attempting to maximize the offer,” ISS said in its report.

Broadcom first unveiled an unsolicited $70 per share cash-and-stock offer in November, which Qualcomm rejected. It raised its offer to $82 per share in cash and stock on Feb. 5 and offered other concessions, including paying an $8 billion breakup fee in the event regulators thwart the deal, which would be the technology sector’s largest-ever acquisition.

ISS said it did not recommend voting for all six Broadcom nominees because Qualcomm’s board would then be less inclined to drive a hard bargain with Broadcom in deal negotiations. ISS recommended that Broadcom nominees Samih Elhage, Julie Hill, John Kispert and Harry You should be elected as Qualcomm board directors.

Qualcomm on Friday called a Feb. 14 meeting with Broadcom constructive and opened the door to more talks, but continued to reject the proposed deal.

As of Saturday afternoon, no new meeting between the two companies had been scheduled, according to people familiar with the matter. Broadcom and Qualcomm representatives offered no immediate comment.

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