QCOM QUALCOMM Inc

Six board members get tepid support in holder vote following Broadcom ordeal

By David Benoit and Ted Greenwald 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 24, 2018).

Six of Qualcomm Inc.'s directors, including Chief Executive Steve Mollenkopf, failed to win support from a majority of the company's shares Friday, a significant protest vote that signals investor discontent after the chip-making giant successfully rebuffed a hostile takeover from Broadcom Ltd.

At the company's annual meeting in San Diego, just 40% to 50% of the total shares outstanding were voted in favor of the six directors, with the other four getting more than 50%, according to a person familiar with the count.

An 11th director, former Chairman Paul Jacobs, wasn't nominated to stand for re-election after a dispute with other board members over his desire to make a bid for the company.

All the directors will remain on the board since they were running unopposed after the U.S. government blocked Broadcom's bid, and by extension its six-member slate of nominees. The vote count for the originally scheduled meeting that would have pitted the Broadcom slate against Qualcomm's nominees showed Broadcom winning at least four seats and with a path to get up to six, people familiar with the matter have said.

The latest numbers are preliminary -- a tally will be disclosed next week -- and subject to change.

Qualcomm investors had raised concerns about the company's performance and how it handled Broadcom's $117 billion takeover offer -- with anxiety over the latter stoked by the revelation that Qualcomm had prompted the government review that led to the order from President Donald Trump blocking the deal. Institutional Shareholder Services Inc. advised investors to continue to vote for Broadcom's nominees even though they couldn't be elected, as a sign of protest.

While no one will be forced off the board by Friday's vote, such a lack of support for directors often increases pressure on companies to make changes.

The vote tally could have been worse: In a contested election, winning some 40% of the total shares is often sufficient to secure victory given many shareholders don't vote.

The tumult on Qualcomm's board follows a period of high drama that started in November when Broadcom announced an unsolicited bid for the chip maker, which has suffered a series of regulatory fines and customer revolts including a bitter legal battle with Apple Inc. over patent royalties. Qualcomm stock is down by more than 10% since Apple launched a barrage of lawsuits early last year.

Singapore-based Broadcom's takeover attempt fell apart when Mr. Trump accepted a recommendation by the Committee on Foreign Investment in the U.S. to block it. That recommendation followed a petition by Qualcomm in January seeking a committee review of the deal.

CFIUS, which oversees foreign acquisitions of U.S. companies, found that Qualcomm's large investments in next-generation cellular systems are critical to national security and that a takeover by Broadcom, known for cost cutting and financial discipline, would risk ceding U.S. technology leadership to Chinese companies, particularly Huawei Technologies Co.

Before the Trump administration's action, two services that advise big investors in proxy contests had recommended that Qualcomm shareholders vote for at least some of Broadcom's nominees. One, ISS, maintained its recommendation to vote for four of Broadcom's six nominees, even though they couldn't be seated.

Qualcomm's meeting originally was scheduled for March 6. However, CFIUS on March 4 ordered it postponed to give the panel time to evaluate whether Broadcom's effort to control Qualcomm's board would pose a national-security risk. The president issued his executive order a little over a week later, disqualifying Broadcom's candidates and forcing the hostile suitor to withdraw its bid.

Mr. Mollenkopf has had a mixed record as CEO of the chip company for the past four years. He has expanded beyond Qualcomm's core smartphone modem-and-processor business and initiated the pending acquisition of NXP Semiconductor NV to turbocharge the company's prospects in automotive, security and connected devices. But he has also presided over a series of business and regulatory problems. He failed to head off attacks on the company's lucrative patent-licensing business by Apple and Huawei, and probes by regulators in the U.S., China and elsewhere -- challenges that dented the share price and opened the door to Broadcom's takeover attempt.

Mr. Jacobs, himself a former CEO of the company and the son of Qualcomm co-founder Irwin Jacobs, last week alerted directors to his own effort to buy the company, which he said would be better off under private ownership. The board responded by announcing that it wouldn't renominate him. It had stripped him of his chairman title and his executive responsibilities the week before. It isn't clear where his potential bid stands or whether he intends to keep pursuing it. His former fellow directors, as well as many analysts and investors, are skeptical he can pull it off.

Write to David Benoit at david.benoit@wsj.com and Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

March 24, 2018 02:47 ET (06:47 GMT)

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