Source: Ian King from Bloomberg
Hock Tan has put together nine deals worth more than $50 billion since 2013. Broadcom Ltd.’s chief executive officer has grown accustomed to getting his way, using compromise, more money, sheer force of will—or a combination of all three.
Bringing Qualcomm Inc., his latest target, to heel isn't going so smoothly. Recently, the mobile chip powerhouse rejected his $105 billion, $70-per-share offer, saying it was far too low and raised significant regulatory uncertainty. It was the second brushoff. Last year, Tan approached Qualcomm privately and was turned down, according to people familiar with the situation. Recently, he quickly reaffirmed his determination to buy the San Diego-based chipmaker.
Now Tan, 65, has a choice: He can sweeten the offer or appeal directly to Qualcomm shareholders—setting in motion the biggest technology takeover battle in history. Tan is selling a vision that runs counter to the industry’s conventional wisdom: that chip makers should focus on what they’re best at and stop throwing money at sectors where they’re playing catchup. While Qualcomm is a leader in mobile chips, lately it's begun pivoting into servers, cars and PCs.
“He starts with a point of view that the semiconductor industry has matured,” says Ken Hao, a managing partner at private equity firm Silver Lake, which has worked with Tan in the past and is backing the Qualcomm bid. “The businesses must be run differently than when they were growing up.”
The Malaysia-born Tan learned much of what he knows from working with private equity firms. After earning an MBA from Harvard Business School he worked in finance at PepsiCo Inc. and General Motors Co. for a time. Then in 1994, he joined Integrated Circuit Systems Inc., where he eventually became CEO. During his time there, the chipmaker was taken private, relisted and then sold.
The success brought Tan to the attention of Silver Lake and KKR. The two PE firms tapped him to run Avago Technologies, once a Hewlett-Packard division. Tan used Avago to roll up companies once owned by some of the biggest names in the industry, culminating with last year’s acquisition of Broadcom.
How that deal came together is quintessential Tan. One day in April 2016, he simply called Broadcom management, made an offer and tried to hash out the basis for a deal then and there, according to people familiar with the situation. Tan was solicitous and charming but made clear his lack of patience for a drawn-out process working through bankers and lawyers, said the people, who declined to be identified discussing a private matter. He also demonstrated a detailed grasp of the numbers and was prepared to get involved right down to the small print to move things along, they said. From his first call to then CEO Scott McGregor to the deal’s announcement took a month and half, according to regulatory filings.
As he set about rolling up chipmakers, Tan focused on collecting the winners, companies that have built sustainable franchises. “You buy the public companies,” he says. “Then you preserve them by continuing to invest in a major way to sustain those franchises.” Once he acquires a target, Tan typically shoves out the existing management, cuts costs and ditches divisions he deems extraneous to the core business. Consider Broadcom: In a matter months, he ousted the chief executive and spun off the wireless infrastructure and internet of things businesses.
Wall Street has generally applauded Tan’s vision, pushing up his company’s shares more than 1,600 percent since 2009. But most big chip makers don’t share his approach, believing that when you have a strong technology lead you take that strength and try to parlay it into new markets. To jumpstart a push into car components, Qualcomm is in the midst of its own $40 billion-plus acquisition of NXP Semiconductors NV. Qualcomm is also trying to move into server chips and about to relaunch a failed attempt to enter the personal computer chip market. Qualcomm, Nvidia and Intel all spend heavily on marketing to build a brand around their chips.
In short, Tan has a major sales job on his hands. In the past, he has managed to persuade even company founders it’s time to change. He got Broadcom founders Henry Nicholas and Henry Samueli to sell, with the latter even agreeing to stick around as chief technical officer. Tan avoided potential friction by retaining the Broadcom name, according to people familiar with what happened.
The Qualcomm executives will be much harder to persuade. Some spent the past 20 years building the company into what it is today. Executive chairman Paul Jacobs is a son of founder Irwin Jacobs and loves to talk about how wireless technology will change the future. CEO Steve Mollenkopf worked his way up from chip designer. Both will vote on the proposal as members of Qualcomm’s board; they’re more than a decade younger than Tan and won’t be as easily dislodged as executives at his previous acquisitions.
While the coming months will surely test Tan, he says: “We believe there’s a clear path to completion.”