Could insiders take Qualcomm private?
Qualcomm's ultimate ownership is likely to impact component prices, technology access and possibly even national security. This week President Trump rescued the company from Broadcom's hostile takeover bid, but now Paul Jacobs, son of co-founder Irwin Jacobs, is reportedly interested in taking the company private. (Think Michael Dell.) According to The Financial Times , Jacobs has approached SoftBank to ask for financial backing.
A SoftBank investment in Qualcomm could make the chipmaker a sister company to Sprint and to ARM, both of which are majority-owned by Japan's SoftBank. Qualcomm and Sprint of course have a shared history based on CDMA, and ARM's IP helped Qualcomm processors dominate the smartphone market. More recently, Qualcomm has started making processors for ARM-based servers.

But none of this means SoftBank is actually going to invest in Qualcomm, or even that Jacobs will launch a formal attempt to privatize the company. RBC Capital analyst Amit Daryanani labeled the deal "unlikely" based on the amount of debt the privatized company would carry. Bernstein Research analyst Stacy Rasgon thinks the deal would have to be worth at least $145 billion, as it would likely include not only Qualcomm but NXP.

"We presume that Dr. Jacobs would still want NXPI (he just spent 18 months pushing for the deal as executive chairman, so it would be strange if he didn’t want it as a private company)," Rasgon wrote in a research note.

Today Qualcomm again extended its tender offer for NXP, which has been on the table for more than a year. China's Ministry of Commerce has yet to approve the transaction, and it's possible that China is taking its time while Huawei negotiates the licensing fees it will pay Qualcomm going forward. Qualcomm has said that two customers (Apple and another unnamed company) have suspended payments for the use of Qualcomm's IP. Earlier this month, press reports indicated that the second company is Huawei.

Licensing intellectual property is the most profitable part of Qualcomm's business, and the company clearly needs to get this business back on track, regardless of its ownership structure. It's possible that without public shareholders pressing for quarterly returns, Qualcomm could negotiate deals that would work for its licensees and enable it to move forward. But the cost of privatization may be too high.

Private buyers would need to pay a higher price for Qualcomm than Broadcom was offering, according to Rasgon, because selling to insiders at a lower price would look "horrendous" by almost any standard. High debt levels could lead Qualcomm to sell assets, and this is exactly what the Trump Administration was worried about when it decided to block Broadcom's attempt to buy Qualcomm. President Trump has made it crystal clear that he wants the U.S. to be the leader in 5G research and development. But if Qualcomm were forced to sell parts of its business or intellectual property, Huawei or other foreign competitors could end up with these assets.

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