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Qualcomm Looks to Reject Broadcom Offer, and Much More

Monday, November 6, 2017

We’ve got another busy week in store: more Q3 earnings and economic data, Republicans in U.S. Congress get busy working through the details of its massive tax reform program and the arrest in Saudi Arabia of a man known as “the Warren Buffett of the Middle East” are all grabbing headlines this morning. And we also see what appears to be a hostile bid by Broadcom AVGO to take over Qualcomm QCOM for $70 per share, or $130 billion, including $60 billion in cash and Qualcomm debt.

Should this merger deal be accepted, it would be the largest pure-tech deal in history, which would be accretive to Broadcom after the first year of the merge. But odds are very good Qualcomm will reject this proposal; though the company has acknowledged it has received the offer but given no indications that its board will find the terms favorable. Considering Qualcomm’s recent difficulties as a supplier of Apple AAPL products, some may see this as Broadcom moving at a very advantageous time.

Reports this morning are that Qualcomm officials are openly questioning the initial asking price, as well as antitrust issues, in what is understood to be an initially negative reaction. And would Apple’s involvement — behind the scenes, perhaps — somehow manage to facilitate this deal down the road in a way that puts Qualcomm’s issues with Apple behind them? One thing is for sure: this is a discussion just warming up; we expect to hear much more about this proposed deal throughout the rest of this week and beyond.

Prince al-Waleed bin Talal, reportedly facing money laundering charges following a corruption purge by Saudi Crown Prince Mohammad bin Salman, may cause some ripples through the U.S. markets this morning — especially in two of al-Waleed’s major holdings, Citigroup C and Twitter TWTR. Questions regarding Middle Eastern countries surrounding and necessarily affected by the crown prince’s moves, such as rival major power in the region, Iran, and Lebanon, which has had its own issues with stability at the top recesses of government.

Futures in U.S. markets are so far shaking all of this off. We are in the green again this morning, following 8 straight weeks of an up-market. As we’ve discussed before here and elsewhere, at least some of this positive sentiment is a result of hopefulness that corporate tax cuts will create new windfalls for companies and their shareholders, perhaps even before the year is out.

Q3 Earnings Update

CVS Pharmacy CVS beat estimates by a penny to $1.50 per share this morning, on in-line quarterly sales of $46.18 billion. Earnings are down year over year, but revenues were up 3.5%. CVS also upped its earnings guidance for full-year 2017.

Michael Kors KORS well outperformed expectations before today’s opening bell, with earnings of $1.33 per share easily surpassing the 83 cents in the Zacks consensus, up 37% year over year. Fiscal Q2 2018 sales of $1.147 billion topped the $1.046 billion we had been expecting. Guidance for both fiscal Q3 and full-year 2018, on both top and bottom lines, were also raised.

Mylan Pharma MYL, however, missed expectations on both earnings and revenues, with $1.10 per share short of the $1.22 we were looking for, and $3.0 billion in sales beneath the $3.08 billion in the Zacks consensus estimate. Weaker-than-expected performance in North America, underscored by a fall in EpiPen sales in the quarter, were cited in the company’s report.

Mark Vickery
Senior Editor

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