Broadcom Offers to Acquire Qualcomm for $103 Billion
07 November, 2017, 01:37 | Author: Franklin Nunez
We refer investors to our November 3 note, written after Bloomberg and The Wall Street Journal surfaced rumors about the potential bid, but in short, we see a sound strategic rationale for such a deal, and the financial component is especially attractive for Broadcom because we value Qualcomm at $68 per share on a stand-alone basis. Qualcomm apparently isn't happy with the offer, with Bloomberg saying that Qualcomm thinks the deal "undervalues the company".
"Our proposal provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company", said Hock Tan, president and chief executive officer of Broadcom. We note that Broadcom's bid is independent of Qualcomm's success in closing its bid for NXP.
Qualcomm said in its own statement that the bid will now be assessed by its board. Including debt, Broadcom's bid values the transaction at $130 billion. It has pulled off a string of purchases over a decade.
Broadcom shares rose 1.4 per cent to US$277.52 after touching a record of US$281.80.
Broadcom, Qualcomm and NXP together would have control over modems, Wi-Fi, GPS and near-field communications chips, a strong position that could concern customers such as Apple and Samsung Electronics Co Ltd because of the bargaining power such a combined company could have to raise prices.
A year ago, the company entered a $5.5 billion agreement to merge with USA network provider Brocade Communications Systems, but that has been delayed while it's scrutinized by the Committee on Foreign Investment in the United States.
"Qualcomm will have no further comment until its board of directors has completed its review", the company said.
Apple, as a key customer, could play a key role. "It would value Qualcomm's equity at roughly $103bn".
The bid comes as Broadcom plans to move its headquarters to the United States from Singapore.
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Update: Bloomberg's sources say Broadcom could offer Qualcomm about $70 per share in cash and stock within the next few days. A subsequent report in the Wall Street Journal said the bid could come as early as this weekend.
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