Qualcomm expected to keep their extra m and say no to Broadcom

Jon Howard
November 7, 2017

The chip manufacturer Broadcom is proposing a $130 billion deal to purchase Qualcomm in what would be one of the biggest tech mergers in history. 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. It's prepared to launch a proxy battle should Qualcomm spurn the $70-a-share proposal, a person familiar with the matter has said. Broadcom already provides designs for Wi-Fi and Bluetooth chips, and by bringing in Qualcomm it will be able to encompass LTE and 5G capabilities. The company has gone so far with its Apple fight that it recently filed a lawsuit seeking to ban sales of the iPhone in China. In other words, don't expect this deal to close anytime in the near future.

Perhaps the most important new news on the bid is that Qualcomm is expected to reject this deal as it undervalues the company.

We would not make this offer if we were not confident that our common global customers would embrace the proposed combination.

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"Given Broadcom's press release regarding pursuing a U.S. M&A strategy, we believe Broadcom potentially sees accretion in the Qualcomm Technology Licensing segment". We think NXP would also fit in reasonably well under the Broadcom umbrella, but we're surprised that Qualcomm's cash hoard isn't a requirement to fund Broadcom's bid. "It would value Qualcomm's equity at roughly $103bn".

Specifically Broadcom is offering to pay $70.00 per Qualcomm share, with $60.00 being in cash and $10.00 per share in Broadcom shares. There are now 10 buys, 16 holds and no sells on Qualcomm, with an average price target of $61.74, according to data compiled by Bloomberg.

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