Deal or No Deal for Broadcom and Qualcomm?
Though Qualcomm's board rejected Broadcom's unsolicited bid, we expect Broadcom's advances to persist.
As expected, Qualcomm’s (QCOM) board unanimously rejected Broadcom’s (AVGO) unsolicited $105 billion offer to acquire the embattled semiconductor firm. Broadcom announced that it remains fully committed to the acquisition, suggesting that it may raise its bid.
Given that the $70 per share offer ($60 in cash and $10 in stock) is only modestly above our unchanged $68 fair value estimate for narrow-moat Qualcomm, we reiterate our view that this is an opportunistic move by Broadcom to take advantage of Qualcomm’s depressed valuation caused by the dispute with Apple (AAPL) and attacks on its licensing business. We foresee Broadcom CEO Hock Tan attempting to get a director elected to Qualcomm’s board who would favor the deal (Dec. 8 is the nomination deadline).
Qualcomm’s board stressed regulatory uncertainty as a potential pitfall to the combination. With Qualcomm already facing significant scrutiny of its proposed acquisition of NXP Semiconductors, we anticipate even greater challenges for Broadcom to convince regulators to bless its intended deal. We think Qualcomm is also aiming for a higher offer more in line with recent acquisition premiums relative to management’s view of the firm’s true valuation.
Overall, we view Qualcomm’s shares as close to fairly valued today. Nevertheless, all signs are pointing up for Qualcomm, given the potential for a higher bid from Broadcom. We are maintaining our $203 fair value estimate for narrow-moat Broadcom, as we have not adjusted our valuation to account for accretion from any deal; such accretion would be lessened if Broadcom were to raise its offer price.
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Abhinav Davuluri does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.