Qualcomm also said the transaction may face regulatory scrutiny that would cast doubt on its completion.
Broadcom CEO Hock Tan, who said earlier this month he would redomicile his company to the United States from Singapore, has stated he is open to launching a takeover battle. For now, Broadcom said it remains "fully committed" to going ahead with the purchase.
"It is the Board's unanimous belief that Broadcom's proposal significantly undervalues Qualcomm relative to the company's leadership position in mobile technology and our future growth prospects", said Paul Jacobs, executive chairman of Qualcomm.
Qualcomm Chief Executive Steven Mollenkopf has spent the past few days soliciting feedback from Qualcomm shareholders, and feels that Broadcom's $70-per-share bid undervalues the company and does not price in the uncertainty associated with getting the deal approved by regulators, according to the sources.
Qualcomm now needs to convince investors that they can create more shareholder value independently, Raymond James analyst Chris Caso said.
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Upon news of the deal, Qualcomm's stock rose 1.6 percent and Broadcom's stock rose.04 percent. "We would not make this offer if we were not confident that our common global customers would embrace the proposed combination".
Broadcom isn't taking no for an answer in its effort to take over Qualcomm. The combined business would instantly become the default provider of a set of components needed to build each of the more than a billion smartphones sold every year.
However, Qualcomm is likely to dig in for a lengthy siege. Sources close to the deal say that Broadcom is preparing to challenge Qualcomm's sitting board members with its own hand-picked slate at the next stockholder's vote. Qualcomm does not plan to significantly raise its price for NXP as a defensive strategy to make its acquisition by Broadcom more expensive, according to one of the sources. Tan said his offer for Qualcomm stands with or without Qualcomm's acquisition of NXP.
Chief executive Steve Mollenkopf added that Qualcomm's achievements to date have offered significant value to stockholders. A statement release by Qualcomm said that the board had "unanimously rejected the unsolicited proposal announced by Broadcom".
Qualcomm shares closed at $64.57 on Friday, while Broadcom ended at $264.96. The company, based in San Diego, is also brawling with Apple, a major client, over royalties that it collects on mobile gadgets.
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