Broadcom Limited AVGO made yet another acquisition offer for Qualcomm, only to be rejected again. The bid now stands at $117 million, or $79 per share, down from $82 per share previously.
Broadcom lowered its bid as a result of Qualcomm increasing its offer to acquire NXP Semiconductors for $44 billion. The company believes that Qualcomm's latest bid overvalues NXP.
Earlier Broadcom had offered $70 per share for a total value of $130 billion that was subsequently rejected by Qualcomm. After the rejection, Broadcom presented the ‘best and final offer’ of $82 per share, which was rejected again.
Per Qualcomm, the sole reason for the repeated rejection of the offer was an undervalued deal.
Why Broadcom Wants to Acquire the Chipmaker
Broadcom intends to go ahead with the deal in order to reap the benefits of cost reduction. We note that it was able to derive cost cutting and financial engineering benefits from its merger with Avago Technologies.
Qualcomm’s investment in 5G wireless services as well as NXP purchase, which will offer significant exposure to self-driving cars and automotive market, will provide significant advantage to Broadcom. Moreover, Broadcom is eyeing this cash cow for its patent licenses, which amounted to more than $5 billion at the end of 2017.
Although the buyout will make Broadcom the largest entity in the tech segment, it is likely to face anti-trust regulation issues for the same. However, Broadcom plans to sell two of Qualcomm’s businesses, namely the Wi-Fi networking processors and RF Front End chips for mobile phones to avoid such an issue.
If the deal is cancelled on account of regulatory opposition, Broadcom will pay $8 billion for the disruption caused. Broadcom expects to obtain necessary approvals to close the deal within a year. If it takes longer, it will pay 6% a year of the amount to be paid in cash as compensation.
Zacks Rank and Key Picks
Broadcom carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the semiconductor industry are NVIDIA NVDA, Intel INTC, and Mellanox Technologies, Ltd. MLNX. While NVIDIA and Intel sport a Zacks Rank #1 (Strong Buy), Mellanox carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
NVIDIA, Intel and Mellanox have a long-term expected earnings growth rate of 10.25%, 8.42% and 15.50%, respectively.
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