CNBC Transcript: Qualcomm Lead Director Thomas Horton Speaks With David Faber Today

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Qualcomm Lead Director Thomas Horton and CNBC's David Faber on CNBC's "Squawk on the Street" (M-F 9AM - 11AM) today, Tuesday February 20th. Following is a link to video from the interview on CNBC.com here!

DAVID FABER: WELL, QUALCOMM IS UPPING ITS BID TO ACQUIRE NXPI TO $44 BILLION THIS MORNING. THIS AS THE CHIP GIANT CONTINUES TO FEND OFF THE HOSTILE BID FROM BROADCOM. BROADCOM'S CEO HOCK TAN JOINED US LAST WEEK AND HE SAID THE ACQUISITION OF NXPI BY QUALCOMM WOULD NOT SOLVE THAT COMPANY'S PROBLEMS. TAKE A LISTEN.

HOCK TAN: NXPI IS NOT - WILL NOT SOLVE QUALCOMM'S PROBLEMS. IT'S THE BROKEN BUSINESS MODEL THAT IS -- AND IF, WE HAVE SAID IT TOO, IF QUALCOMM RAISES THE PRICE ON NXPI, WE'VE MADE IT VERY CLEAR, IT'S A CLEAR TRANSFER OF VALUE FROM QUALCOMM SHAREHOLDERS TO NXPI SHAREHOLDERS.

JIM CRAMER: SO ANOTHER WALK AWAY?

DAVID FABER: SO YOU WALK AWAY?

HOCK TAN: NO, WE'LL PRESERVE ALL OF OUR OPTIONS.

FABER: IN FACT, BROADCOM CONTINUES TO SAY JUST THAT THIS MORNING IN A STATEMENT SAYING THEY'RE CONSIDERING THEIR OPTIONS. FOR MORE ON ALL OF THIS AND A CNBC EXCLUSIVE, LET'S TALK TO QUALCOMM'S LEAD DIRECTOR, HE'S TOM HORTON. SOME PEOPLE MAY REMEMBER YOU, OF COURSE, AS RUNNING AMERICAN AIRLINES AND ANOTHER OF OTHER THINGS AS WELL. NICE TO HAVE YOU HERE.

THOMAS HORTON: GREAT TO BE HERE.

FABER: WHY DID THE BOARD DECIDE TO INCREASE THE OFFER TO $127.50 FOR NXP, WHEN YOU DO HAVE SOMEONE LIKE HOCK TAN SAYING IT'S A FAILED BUSINESS MODEL THAT YOU HAVE IN GENERAL?

HORTON: WELL, OF COURSE WE TOTALLY DISAGREE WITH ALL OF THAT. THE DEAL FOR NXP IS STRATEGICALLY VERY IMPORTANT FOR QUALCOMM, ACCELERATING OUR GROWTH INTO AUTOMOTIVE, IoT SECURITY, BUILDING ON OUR 5G STRENGTH AND ROLLOUT. STRATEGICALLY MADE A LOT OF SENSE. WE DID THE DEAL INITIALLY AT $110 A SHARE. I THINK A LOT OF FOLKS VIEWED THAT AS A YOU KNOW, VERY FAVORABLE PRICE PER QUALCOMM. THE COMPANY HAS CONTINUED TO DO VERY WELL. EARNINGS ARE UP 20% FROM THE TIME WE DID THE DEAL.

FABER: THAT'S NXP YOU'RE TALKING ABOUT?

HORTON: NXP'S EARNINGS, AND WE RAISED THE BID 16% SO IT'S ACTUALLY AT A LOWER MULTIPLE THAN THE DEAL WHEN IT WAS ORIGINALLY ANNOUNCED. SO WE THINK IT MAKES SENSE STRATEGICALLY AND FINANCIALLY.

FABER: AS I'VE BEEN REPORTING FOR MANY, MANY MONTHS, THE DEAL WAS NOT GOING TO GET DONE AT 110.

HORTON: WE NOTED THAT.

FABER: YEAH, AND IN PART BECAUSE OF ITS UNIQUE STRUCTURE, DUTCH COMPANY, A TENDER OFFER AS OPPOSED TO THE WAY OTHER THINGS GO. IS IT DONE NOW IN YOUR OPINION? IS THIS THING GOING TO CLOSE ON MARCH 5th? AND WHAT ABOUT CHINA? WE'RE STILL WAITING FOR APPROVALS FROM THE ANTI-TRUST AUTHORITIES.

HORTON: AND WE DON'T KNOW WHEN WE'LL GET THE APPROVAL FROM THE CHINESE ANTI-TRUST AUTHORITIES. THEY'RE A CONFIDENT REGULATOR AND THEY TYPICALLY TEND TO FOLLOW THE OTHERS. WE'VE GOT EIGHT REGULATORY BODIES AROUND THE WORLD THAT HAVE ALREADY APPROVED IT. SO WE THINK WE'LL GET APPROVAL, BUT WE HAVE TO WAIT AND SEE ON THAT. IN TERMS OF THE SHAREHOLDERS, YOU KNOW, WE'VE GOT 28% OF THEM SIGNED UP, WE LOWERED THE MINIMUM TENDER THRESHOLD FROM 80 TO 70 SO WE THINK FROM A SHAREHOLDER PERSPECTIVE IT'S BUTTONED UP.

FABER: AND FROM CHINA, ON TIMING, YOU JUST HAVE NOTHING TO OFFER AT THIS POINT?

HORTON: WELL, WE'LL WAIT AND SEE. YOU KNOW, IT'S THE MIDDLE OF THE CHINESE NEW YEAR, SO THAT'S SLOWED THINGS DONE A LITTLE BIT, BUT WE THINK AFTER THAT WE'LL GET APPROVAL. WE'RE CONFIDENT WE'LL GET APPROVAL. WE'VE BEEN IN CONSTANT DIALOGUE WITH MOFCOM AND WE THINK WE'LL GET APPROVAL IN SHORT ORDER.

FABER: MARCH 5THIS WHEN THE TENDER OFFER FOR NXP EXPIRES, MARCH 6TH IS CURRENTLY THE VOTE FOR YOUR OWN SHAREHODLERS TO DECIDE WHO IS GOING TO BE ON YOUR BOARD OF DIRECTORS.

HORTON: THAT'S CORRECT.

FABER: ISS, THE INFLUENTIAL ADVISORY FIRM, CAME OUT WITH THEIR RECOMMENDATION LATE FRIDAY, IN WHICH THEY SAID THEY THINK FOUR OF BROADCOM'S NOMINEES SHOULD BE SEATED. THEY WENT ON TO SAY, "QUALCOMM'S OPTIMISTIC VISION OF THE FUTURE WOULD LIKELY RESONATE MORE EFFECTIVELY AMONGST SHAREHOLDERS IF THE COMPANIES TRACK RECORD WAS MORE LIKE THAT OF IT'S WOULD BE ACQUIRER-BROADCOM." WHAT DO YOU SAY WHEN YOU READ SOMETHING LIKE THAT?

HORTON: WELL OBVIOUSLY WE DISAGREE THAT FOUR DIRECTORS NEED TO BE ADDED TO OUR BOARD, THAT OBVIOUSLY IS NOT A MAJORITY OF THE BOARD SO I THINK IT'S NOTABLE. I THINK WHAT'S INTERESTING ABOUT THE ISS REPORT IS THAT IT AGREED WITH US ON MANY POINTS: WHICH IS $82 A SHARE IS NOT ADEQUATE VALUE FOR THE COMPANY, THE REGULATORY CERTAINTY HAS NOT BEEN SUFFICIENTLY MET, AND NOTABLY THAT CERTAINTY ON NXP WAS IMPORTANT TO QUALCOMM AND IT'S SHAREHOLDERS. WELL WE'VE ACTUALLY ADDRESSED THE LATTER OF THOSE AND WE AGREE WITH THE FIRST TWO, SO I THINK THAT'S IMPORTANT. AND I THINK YOU ALSO NEED TO REMEMBER THAT ISS TENDS TO INFLUENCE A MINORITY OF THE SHAREHOLDERS. SO I THINK IT'S FAR FROM CLEAR WHAT EFFECT, IF ANY, THAT WILL HAVE.

FABER: RIGHT, OF COURSE THE INDEX FUNDS CAN, TYPICALLY, FOLLOW THEM. THEY ARE A SIGNIFICANT PERCENTAGE OVERALL OF MANY COMPANIES SHARES. $82 IS NOT ENOUGH THE BOARD IS UNANIMOUS IN THAT DECISION. WHY?

HORTON: WELL, IF YOU LOOK AT OUR 2019 EARNINGS PROJECTIONS, WHICH ARE NOW EVEN MORE CERTAIN THAN THEY WERE BEFORE WITH THE COMPLETION OF THE NXP DEAL, AROUND $7 A SHARE. $82 REPRESENTED 11 TO 12 TIMES MULTIPLE ON THAT. THE SEMICONDUCTOR AVERAGE MULTIPLE IS AROUND $18, PRECEDENT DEALS IS AROUND $22 SO IT'S JUST NOT EVEN CLOSE TO WHAT THE VALUE OF THE COMPANY IS AND THAT'S THE BOARD'S VIEW.

FABER: AND TO THOSE WHO WOULD SAY THAT $7 NUMBER IS REALLY A REACH, PARTICULARLY GIVEN THE ABILITY OF THE COMPANY TO EXECUTE ON ITS BUSINESS PLAN AND SAY IT FAILED TO DO SO. WHAT'S YOUR RESPONSE?

HORTON: I DISAGREE WITH THAT. WE'RE ON THE VERGE OF REAPING THE BENEFITS OF ALL OF THE INVESTMENTS WE'VE MADE IN 5G, WHICH IS ROLLING OUT IN A PROFOUND WAY OVER THE NEXT COUPLE OF YEARS. AND WE'VE JUST CLOSED UP THE NXP DEAL WHICH HAS $1.50 OF ACCRETION INHERENT IN IT, SO THAT PART OF THE PUZZLE HAS NOW BEEN PUT IN PLACE.

FABER: AND WHAT ABOUT THE BUSINESS MODEL OVERALL? OF COURSE THE LICENSING BUSINESS WHERE IT APPEARS BROADCOM HAS A VERY DIFFERENT VIEW IN TERMS OF HOW THEY WOULD RUN IT. AGAIN TO THIS ISS REPORT, ONLY BECAUSE IT VERY RECENTLY CAME OUT, THEY SAY, "THE ASSERTION THAT CERTAIN CUSTOMERS AND REGULATORS MIGHT BE RECEPTIVE TO A REVAMP OF QUALCOMM'S APPROACH TO LICENSING SEEMS CREDIBLE."

HORTON: WELL, IT'S NOT AT ALL CLEAR WHAT THE PROPOSAL ON LICENSING IS FROM THE BROADCOM SIDE AND THAT'S SOMETHING WE'VE TRIED TO ADDRESS AS WE'VE SPOKEN WITH THEM, BUT I WOULD SAY YOU KNOW, WE HAVE 300 BIG CUSTOMERS AROUND THE WORLD THAT ARE SIGNED UP TO OUR LICENSING PROTOCOL. WHICH, BY THE WAY, CREATES THE PLATFORM FOR 5G. YOU KNOW, QUALCOMM IS SORT OF THE ENGINEERING AND DEVELOPMENT ENGINE BEHIND WIRELESS TECHNOLOGIES AROUND THE WORLD AND A LOT OF CUSTOMERS BENEFIT FROM THAT. SO A COUPLE YEARS AGO WE ESTABLISHED A PROTOCOL FOR OUR LICENSING IN CHINA AS PART OF THE SETTLEMENT WITH THE CHINESE AND THAT'S A BIG PART OF OUR BUSINESS, THAT'S ACTUALLY OUR BIGGEST BUSINESS, AND JUST RECENTLY WE SIGNED UP SAMSUNG, THE LARGEST OEM IN THE WORLD. AND SO I THINK THE FACTS BELIE THAT ASSERTION.

FABER: AND HAS THE DEBATE IN THE BOARDROOM BEEN ROBUST WOULD YOU SAY? YOU'RE CERTAINLY A- YOU KNOW, SOMEONE WHO CERTAINLY HAS A LOT OF EXPERIENCE IN THOSE ROOMS. ARE PEOPLE PUSHING BACK? IS THERE A LOT OF CONVERSATION ABOUT THESE VERY ISSUES?

HORTON: I WOULD SAY THIS IS A VERY ENERGETIC BOARD. WE HAVE A LOT OF NEW BOARD MEMBERS ON THE BOARD. OUR AVERAGE TENURE IS AROUND FIVE YEARS, SO IT'S A VERY ENERGETIC, ENTHUSIASTIC AND FRESH PERSPECTIVE BOARD, IF I COULD PUT IT THAT WAY. WE'RE SKEPTICAL. WE'RE SKEPTICAL, I THINK, IN A HEALTHY WAY OF OUR OWN PLANS. WE'RE SKEPTICAL OF OTHERS PLANS FOR THE COMPANY IN AN M&A CONTEXT. BUT YOU KNOW, THAT'S ONE OF THE REASONS, DAVID, WE THOUGHT GETTING THE NXPI DEAL DONE WAS GOOD IS EITHER CASE. IT MAKES QUALCOMM STRONGER, MORE DIVERSIFIED, MORE PROFITABLE, IT ADDS $3 BILLION IN EBITDA TO QUALCOMM. THAT'S GOOD IN EITHER CASE WHETHER WE PURSUE OUR INDEPENDENT STRATEGY OR WHETHER WE PURSUE A COMBINATION WITH BROADCOM. IT JUST CREATES MORE VALUE FOR QUALCOMM.

FABER: FINALLY, SPEAKING OF BOARDS OF DIRECTORS, KIND OF A PROPITIOUS DAY TO HAVE YOU HERE. YOU'RE A WALMART DIRECTOR.

HORTON: I AM. I'M A PROUD WALMART DIRECTOR.

FABER: AS I'M SURE YOU SHOULD BE. THE STOCK HAS BEEN A STRONG PERFORMER. NOT TODAY. THE EARNINGS ARE DISAPPOINTING. ANYTHING YOU CAN OFFER IN TERMS OF YOUR SENSE TO WHAT IS GOING ON AT WALMART AND WHETHER THIS IS A ONE-QUARTER PHENOMENON?

HORTON: WELL, I'M HERE TO TALK ABOUT QUALCOMM BUT I WILL SAY, YOU KNOW, WALMART IS PLAYING A LONG GAME. WE'RE EXECUTING ON OUR STRATEGY WHICH IS REALLY AN OMNICHANNEL STRATEGY-YOU KNOW, LEVERAGING THE POWER OF OUR STORES WORLDWIDE WITH A VERY AGGRESSIVE E-COMMERCE STRATEGY AND I THINK THAT'S GETTING A LOT OF TRACTION AND WE'RE MOVING FORWARD. THE COMPANY HAS BEEN GROWING AND WILL CONTINUE TO GROW.

FABER: ALRIGHT, I WON'T PUSH YOU ON THAT TOO HARD, ESPECIALLY BECAUSE WE'RE OUT OF TIME. BUT TOM, THANK YOU, APPRECIATE YOU COMING BY.

HORTON: HAPPY TO DO IT. GOOD TO SEE YOU.

FABER: TOM HORTON, LEAD DIRECTOR OF QUALCOMM.

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