Broadcom Revises Merger Offer in Massive Qualcomm Project
On Monday (February 5) Broadcom Ltd. Announced a revised offer for its proposed merger with Qualcomm Inc. The massive $121 billion tag ($82/per share, of which $60 would be paid in cash and $22 in Broadcom stock to Qualcomm shareholders) would make this the largest tech deal of all time. As this is not a project the Broadcom corporate finance team takes lightly, it offers valuable insight into Project Management.
An initial offer from to the Singapore-based chipmaker was first announced on November 6 for only $103 billion. Even at $103B a deal this large would almost certainly require months of working with one or more trusted investment banks (in this case: J.P. Morgan, Deutsche Bank, Morgan Stanley, and others) to model and make predictions for the successful completion of the merger. Project Management tells us that projects have five stages: Defining, Organizing, Planning, Monitoring, and Controlling. Each of these stages is important, and each applies to this merger.
In defining the project, Broadcom would likely have approached the banks with an idea similar to a Project Objective Statement. The statement would have outlined a timeline for the deal–with this new offer, the firm promises to pay a fee if the deal is not closed in 12 months or less from the date of an agreement.
The organization stage of the project would again happen largely in conjunction with the advising investment banks. The bank would have worked with the corporate finance group at Broadcom to talk about its goals for the deal and to determine exactly what steps will need to be taken to ensure that the project is successful. Planning the deal would be almost entirely the banks’ job: how much to offer, how to pay for it, and calculating how long the bank needs to finish the work. Start and finish times are derived from similar deals–though none are strictly comparable as this is the largest tech deal ever–and reasonable deadlines are estimated.
Monitoring for a project of this size is absolutely critical. With such a vast amount of capital at stake, any delay or hitch in the process could cost Broadcom millions or more. Modeling is the most important factor in this stage: analysts at the banks will work around the clock to double and triple check that any iteration of the deal is accounted for.
As the deal is still in its infancy stages, controlling is a relatively unimportant stage. Managing Directors and other upper management staff at banks will control their analysts to ensure timely delivery of work and presentations. The CFO and other staff members at Broadcom will want to be sure that banks are working efficiently, and will certainly request reports and updates throughout the life of the deal.
Though still in its early stages, the Broadcom/Qualcomm merger is a massive and wholly important deal for the tech sector. Qualcomm’s stock fell Monday when the new offer was proposed (not to mention the broader pullback that affected almost every sector), but its stock rebounded and closed Tuesday up over 2%. The project will likely take at least another year to complete, and thus requires a careful eye from management until its completion.
Christian –
I think this is a great analysis of project management. Last semester I took a course on the structuring of M&A deals so I really enjoyed reading this piece and being able to bring in prior knowledge of the topic. It is true – M&A certainly requires a good deal of project management. Especially, as you pointed out, without the crucial monitoring step, these deals would be falling through continuously. Incompletion is already an issue with these deals, and this occurs even when investment bankers are monitoring the deal and managing risk. A downside of M&A is that if a deal is not completed, nearly nobody on the buy-side is paid for the work already done and time already spent.
I wanted to touch upon something you mentioned in your ‘Planning’ section. You said, “Planning the deal would be almost entirely the banks’ job.” I do agree that the bank has large roles it must fulfill in the financing and structuring aspects of the deal, at this point in the project. Something that I think gets often overlooked, however, are the firms’ top managers and how much work they must put into the deal as well. It is critical that these top management teams are planning how will they portray this deal to their shareholders and why does this deal make sense for the firm (aside from the quantitative data). As I mentioned above, a deal can be perfectly structured and financed and still fall through. If shareholders do not cast a majority vote to move forward with a merger or acquisition, it won’t happen.
This being said, a vast amount of planning must be put into the ‘big picture’ idea. A number can look great on paper, but if new management is not going to be compatible, the firm is not going to be able to use its new assets efficiently, or, in a deal as large as this, there may be backlash from government agencies on this being a ‘monopolistic’ new entity, this deal will surely collapse. From this standpoint, I would argue that top management’s planning and execution roles played in these deals are just as if not more important than the planning roles of the corporate finance teams in these investment banks. For some additional reading, I am attaching an article on a large deal, such as this one, that went sour due to anti-trust laws, although eloquently presented on paper.
Thanks for sharing!
(https://www.wsj.com/articles/five-things-to-know-about-the-u-s-case-against-at-t-time-warner-1511260201?mod=searchresults&page=2&pos=17)
Christian,
I really like how you break up this merger into the different phases of managing projects. However, I think that you could have went deeper into the defining/planning stage. Personally, I believe that this stage is one of the more important steps throughout the entire project, as it helps a firm fully understand how long the project will take, the resources required, as well as identify the personnel most fit for certain positions. Because a merger is such a large task, there will be many different people on a lot of different projects. Therefore, it is imperative for management to accurately define all of the necessary parts for the merger so that the company can more efficiently and successfully complete it. Without this step, certain activities could be forgotten or viewed as less important, leading to a less effective and less efficient merger. I actually have a personal experience in regard to project management that speaks to the importance of planning. When I was younger, my dad and I decided to build a tree house in the backyard. Obviously, for this project, we needed materials such as wood, nails, screws, etc. However, instead of trying to plan and figure out how much of each material we would probably need, we decided to just wing it. Needless to say, we ended up with way too much wood and not enough nails to finish the construction of the treehouse. Although this is on a much smaller scale, it still illustrates the importance of planning before starting a project.
Other than this, I do agree with you about the critical importance in regard to monitoring. Without monitoring, all of the work that went into defining and planning the necessary actions required to implement a successful merger will likely be lost. Whoever is in charge of the project needs to observe the processes in order to ensure that the planned actions are actually taking place and leading to a successful merger. And like you said, any delay or hiccup in the process could end up costing Broadcom millions of dollars.