For Qualcomm shareholders, the past three fiscal years have been rough. During that time, a $10,000 investment in Qualcomm stock would have plunged to $7,560.
Qualcomm investors obviously aren't happy with those numbers, which were calculated based on the San Diego company's three-year annualized total shareholder return of -- 8.9 percent.
Rival chipmaker Broadcom is betting that Qualcomm shareholders are angry enough to throw out a majority of the company's 11-member board of directors.
Broadcom has nominated a slate of six alternative candidates to challenge Qualcomm's existing directors in hopes of advancing its $117 billion hostile takeover bid.
Election results will be announced at Qualcomm's annual meeting on Tuesday at the company's headquarters. Broadcom representatives are expected to attend.
"We would not attempt to call the vote but suspect it will be close and believe Broadcom is likely to win at least some board seats -- even if their quest for a majority fails," said Stacy Rasgon, an analyst with Bernstein Research.
The vote could have a major impact on the San Diego region, where Qualcomm employs roughly 13,000 workers.
Last year, the total economic impact of Qualcomm in greater San Diego was $4.9 billion -- the equivalent of 35 Comic-Cons, according to the San Diego Regional Economic Development Corp.
But that probably wouldn't continue under Broadcom. Chief Executive Hock Tan has a track record of running a tight ship -- selling off non-core product lines and keeping a lid on costs.
For example, Qualcomm's sales/administrative expenses last year came in at 12 percent of its $22.3 billion in revenue.
Broadcom's were just 4 percent of its $17.6 billion in revenue.
Broadcom has offered $79 per share for Qualcomm -- well above Qualcomm's Friday closing price of $64.74.
While Qualcomm's board is willing to talk, it so far has rejected Broadcom's price as too low given its growth prospects -- particularly from its pending $43 billion acquisition of Dutch automotive chipmaker NXP Semiconductor to diversify its business beyond smartphones.
Qualcomm raised the price for NXP from $110 per share to $127.50 per share last month to gain support of NXP investors who believed the Dutch firm was worth more now than it was when Qualcomm first agreed to buy it 16 months ago.
Chinese regulators have yet to sign off on the deal, however. It's doubtful that Qualcomm can close NXP before Tuesday's vote.
And what happens next could shed light on how Broadcom's candidates -- if elected -- wield their power on Qualcomm's board.
In February, Tan objected to Qualcomm upping the price for NXP -- claiming his offer was better for shareholders.
According to Qualcomm, Broadcom's nominees -- each of whom is being paid $100,000 to seek election -- are "conflicted" when it comes to decisions that might increase Qualcomm value.
And Qualcomm thinks NXP definitely makes it more valuable. It's a cornerstone of its contention that $79 per share isn't enough. With NXP in tow, Qualcomm believes it can deliver earnings that support a stock price of roughly $100 per share by the end of 2019.
Broadcom says its alternative board candidates are qualified. If elected, they would have a fiduciary duty to act in the best interests of Qualcomm shareholders. They have not committed to support Broadcom's buyout.
There are other puzzles for shareholders to ponder in this saga.
Regulators are likely to take a long, hard look at the deal -- which would create a semiconductor juggernaut with a leading market share in every high value semiconductor socket in smartphones.
Government officials in the U.S. and Europe have already sounded alarms, with lawmakers calling for the Committee for Foreign Investment in the U.S. (CFIUS) to investigate the deal's potential national security implications.
(Broadcom is based in Singapore but has pledged to relocate its headquarters to the U.S., which could negate CFIUS jurisdiction.)
If the deal is blocked or abandoned because of onerous requirements, Qualcomm contends it could be wrecked from the loss of key employees and customers during the lengthy regulatory review. It believes Broadcom's proposed $8 billion break-up fee falls short of covering the potential damage.
"I think it is difficult for shareholders to replace the board of Fortune 100 companies," said Romit Shah, an analyst with Nomura/Instinet. "I am not convinced that a majority of shareholders will vote in a logical way because there is regulatory risk, which people believe Broadcom hasn't fully safeguarded against."
Broadcom also hasn't revealed its plans for Qualcomm's lucrative but troubled patent licensing arm -- except to say the business model of selling chips while separately licensing patents has been broken for a long time.
Patent royalties make up nearly 70 percent of Qualcomm's profits and fund much its research that makes it a leader in mobile technologies.
Shareholders can't gauge the prospects of the combined companies, according to Qualcomm, without knowing Broadcom's strategy for licensing -- which currently is mired in legal battles with Apple and global competition regulators.
Qualcomm says its existing board is diverse and understands its complex business, while Broadcom's candidates don't. The current board is not entrenched or stacked with insiders. Nine of the 11 directors are independent. Seven board members have served less than five years.
Finally, Qualcomm thinks it has a tremendous growth opportunity over the next decade because of its leadership in 5G -- the next wave of mobile technology to connect everything from cars to health care devices to infrastructure.
Broadcom appears to agree, according to analysts.
"5G can't come quickly enough for Qualcomm, but that is why it's so attractive to Broadcom," said Mike Walkley, an analyst with Canaccord Genuity. "Theoretically, they would be taking ownership of Qualcomm and getting through the regulatory review right when 5G is taking off."
Qualcomm's arguments to keep its board intact failed to convince influential proxy advisory firms Institutional Shareholder Services and Glass Lewis.
In a big win for Broadcom, ISS recommended Qualcomm shareholders support four of Broadcom's six candidates as a path toward a negotiated sale.
Glass Lewis recommended that shareholders vote for all six of Broadcom's nominees.
Glass Lewis said Qualcomm's poor performance "supports the notion that Qualcomm shareholders could potentially benefit from a change in executive leadership that a merger with Broadcom would provide."
Here is a list of Broadcom's six candidates and Qualcomm's existing board members.
Samih Elhage, a former executive of Nokia Corp. from 2010-2017, most recently as president of its Mobile Networks Business Group.
David Golden, managing partner of venture capital fund Revolution Ventures since 2013. Previously spent 18 years as an investment banker at J.P. Morgan.
Veronica Hagen, a long-time board member of Newmont Mining Corp and Southern Co. She was CEO of Polymer Group from 2007 until retirement in 2013.
Julie Hill, owner of The Hill Company, an investment, consulting and advisory firm, since 2002. Held leadership positions at real estate development firms Hiram-Hill and Costain Homes.
John Kispert, managing partner of Black Diamond Ventures, former CEO of Spansion, which merged with Cypress Semiconductor in 2015.
Harry You, president and CFO of GTY Technologies Holdings since 2016. Former executive vice president of EMC Corp.
Paul Jacobs, Qualcomm's current Board Chairman. Former Chief Executive from 2005 to 2014. Son of co-founder Irwin Jacobs.
Barbara Alexander, independent consultant and Qualcomm director since 2006. Former senior adviser for UBS and a managing director of Dillon Read & Co.
Jeffrey Henderson, director since 2016 and an advisory director to Berkshire Partners, a private equity firm. Former long-time CFO of Cardinal Health.
Thomas Horton, director since 2008. Senior adviser at private equity firm Warburg Pincus, and former Chairman and CEO of American Airlines. Horton was recently named to the board of General Electric Co.
Ann Livermore, director since 2016. Long-time former executive vice president of the enterprise business at Hewlett-Packard Co.
Harish Manwani, director since 2014, global executive adviser to Blackstone Private Equity since 2015. Former Chief Operating Officer of Unilever from 2011-2014.
Mark McLaughlin, board member since 2015, current chairman chief executive of Palo Alto Networks, a network security firm. Joined the board as part of negotiations with activist investor Jana Partners.
Steve Mollenkopf, Qualcomm CEO since 2014, board member since 2013. Has worked 20-plus years at Qualcomm, including as president and chief operating officer. Former director at General Electric Co.
Clark Randt, Jr., director since 2013, former U.S. Ambassador to China from 2001 to 2009. President of a company that advises firms with interests in China.
Francisco Ros, director since 2010, current president of First International Partners, a business consulting firm he founded. Former Secretary of State of the Government of Spain from 2004 to 2010.
Anthony Vinciquerra, director since 2015, current chairman and CEO of Sony Pictures Entertainment. Former senior adviser for Texas Pacific Group, former chairman of Fox Networks Group and former director of Pandora Media, Motorola Mobility Holdings and DirecTV. Joined the board as part of Jana Partners negotiations.
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