Broadcom bids $130 Billion to acquire Qualcomm

07 November, 2017, 01:22 | Author: Valerie Burke
  • Broadcom makes offer to acquire Qualcomm in record $105bn deal

Under Broadcom's proposal, Qualcomm shareholders would receive $70 per share - $60 in cash and $10 in shares of its rival. We will maintain our fair value estimates of $68 for narrow-moat Qualcomm and $203 for narrow-moat Broadcom, but we would probably raise our fair value estimate for Broadcom-perhaps as much as 25%-if a definitive deal were reached.

"Chipmaker Broadcom officially unveiled a $130bn offer, including net debt, for Qualcomm on Monday, in what could be the largest tech deal in history". However, according to the FT, Qualcomm is set to reject the deal, raising the prospect of a fight for the future of the company.

Reuters reported that Broadcom had not contacted Qualcomm about the offer prior to Tan's letter. While the deal might be massively accretive to Broadcom, we also expect this management team to be disciplined, so while we might see modest raises from here, we don't foresee a bidding war.

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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The move would combine two of the largest makers of wireless communications chips for mobile phones and could pose a significant competitive threat to Intel, which has been looking to diversify into smartphone technology.

"We are positive on the potential of this acquisition as it would bring in complementary cellular products and cost synergies, leading to immediate earnings per share accretion. It would value Qualcomm's equity at roughly $103bn".

"There is a long road here, while Broadcom is one of the most disciplined acquirers, we think in an unsolicited offer - rarely is the 1st offer the last one, suggesting there is an upside bias to Broadcom's math. Net/Net: We think this deal fits Broadcom's strategy and could be a material catalyst to enable earnings per share and free cash flow upside".

And a premium of 33 per cent on Qualcomm's "unaffected 30-day volume-weighted average price".

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