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Qualcomm Meets Broadcom After Rejecting Revised Offer
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Qualcomm’s (QCOM - Free Report) CEO Steve Mollenkopf, CFO George Davis and Chairman Paul Jacobs and other office bearers met Broadcom (AVGO - Free Report) representatives in a two-hour meeting. Neither party said anything about what transpired at the meeting but Broadcom representatives reportedly came away with the feeling that they were listened to without comment. Qualcomm representatives said that the board would meet to discuss the next steps.
The Broadcom Offer
Broadcom’s attempt to acquire Qualcomm to create a wireless powerhouse was thwarted yet again when its revised bid was rejected unanimously by Qualcomm’s board of directors.
In November, Broadcom offered $70 a share, of which $60 was to be paid in cash and the rest in shares. The revised offer, which is Broadcom’s "best and final offer", values each share at $82 ($60 a share in cash and the rest in shares).
Considering the fact that the deal reduces competition, there’s a good chance that regulators in several countries will oppose it. 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.
Since this is an unsolicited, hostile bid to take over control of the company, Broadcom is also looking to replace the entire Qualcomm board with 11 people of its own choosing. Shareholders will cast their votes on Mar 6.
Is Qualcomm’s Concern Justified?
Qualcomm Chairman Paul Jacobs stated in the open letter to Broadcom CEO Hock Tan, “Your proposal ascribes no value to our accretive NXP acquisition, no value for the expected resolution of our current licensing disputes and no value for the significant opportunity in 5G," and “Your proposal is inferior relative to our prospects as an independent company and is significantly below both trading and transaction multiples in our sector.” Moreover, the bid contains "serious deficiencies in value and certainty."
It’s true that the automotive and IoT segments are greatly expanding Qualcomm’s addressable market, being new areas it is expanding into. Moreover, Qualcomm has also taken a lead in 5G technology development and recently announced agreements with 19 carriers and 18 handset OEMs, so it’s clearly getting ready to charge into the market. Any merger-related disruption in this schedule, or if it resulted in the loss of major customers, could come in the way of its capturing the dominant share of the market that it is targeting. So it’s true that if after this disruption, the merger doesn’t go through because of regulatory opposition, the amount proposed to be paid wouldn’t compensate Qualcomm adequately.
Also note that customers won’t be thrilled with the combination because it has the potential to become even more dominant in the wireless market, thereby driving up prices.
Summing Up
Qualcomm was initially not considering a buyout offer at all but it has now softened its stand because some shareholders have expressed interest in the deal should it prove to be truly attractive. Broadcom for its part, and especially CEO Hock Tan has considerable experience wrapping up acquisitions although the size of this deal makes it a different animal altogether. Whether the hostile bid for the company will be successful is still an open question.
Qualcomm shares carry a Zacks Rank #4 (Sell) while Broadcom shares have a Zacks Rank #3 (Hold). Semiconductor peers worth buying instead are #1 (Strong Buy)-ranked Cabot Microelectronics Corp. , or #2 (Buy)-ranked Diodes Inc. (DIOD - Free Report) and Mellanox Technologies . Or, simply head over to the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Qualcomm Meets Broadcom After Rejecting Revised Offer
Qualcomm’s (QCOM - Free Report) CEO Steve Mollenkopf, CFO George Davis and Chairman Paul Jacobs and other office bearers met Broadcom (AVGO - Free Report) representatives in a two-hour meeting. Neither party said anything about what transpired at the meeting but Broadcom representatives reportedly came away with the feeling that they were listened to without comment. Qualcomm representatives said that the board would meet to discuss the next steps.
The Broadcom Offer
Broadcom’s attempt to acquire Qualcomm to create a wireless powerhouse was thwarted yet again when its revised bid was rejected unanimously by Qualcomm’s board of directors.
In November, Broadcom offered $70 a share, of which $60 was to be paid in cash and the rest in shares. The revised offer, which is Broadcom’s "best and final offer", values each share at $82 ($60 a share in cash and the rest in shares).
Considering the fact that the deal reduces competition, there’s a good chance that regulators in several countries will oppose it. 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.
Since this is an unsolicited, hostile bid to take over control of the company, Broadcom is also looking to replace the entire Qualcomm board with 11 people of its own choosing. Shareholders will cast their votes on Mar 6.
Is Qualcomm’s Concern Justified?
Qualcomm Chairman Paul Jacobs stated in the open letter to Broadcom CEO Hock Tan, “Your proposal ascribes no value to our accretive NXP acquisition, no value for the expected resolution of our current licensing disputes and no value for the significant opportunity in 5G," and “Your proposal is inferior relative to our prospects as an independent company and is significantly below both trading and transaction multiples in our sector.” Moreover, the bid contains "serious deficiencies in value and certainty."
It’s true that the automotive and IoT segments are greatly expanding Qualcomm’s addressable market, being new areas it is expanding into. Moreover, Qualcomm has also taken a lead in 5G technology development and recently announced agreements with 19 carriers and 18 handset OEMs, so it’s clearly getting ready to charge into the market. Any merger-related disruption in this schedule, or if it resulted in the loss of major customers, could come in the way of its capturing the dominant share of the market that it is targeting. So it’s true that if after this disruption, the merger doesn’t go through because of regulatory opposition, the amount proposed to be paid wouldn’t compensate Qualcomm adequately.
Also note that customers won’t be thrilled with the combination because it has the potential to become even more dominant in the wireless market, thereby driving up prices.
Summing Up
Qualcomm was initially not considering a buyout offer at all but it has now softened its stand because some shareholders have expressed interest in the deal should it prove to be truly attractive. Broadcom for its part, and especially CEO Hock Tan has considerable experience wrapping up acquisitions although the size of this deal makes it a different animal altogether. Whether the hostile bid for the company will be successful is still an open question.
Qualcomm shares carry a Zacks Rank #4 (Sell) while Broadcom shares have a Zacks Rank #3 (Hold). Semiconductor peers worth buying instead are #1 (Strong Buy)-ranked Cabot Microelectronics Corp. , or #2 (Buy)-ranked Diodes Inc. (DIOD - Free Report) and Mellanox Technologies . Or, simply head over to the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>