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Qualcomm Gains After Broadcom Makes Buyout Proposal Official

Shares of Qualcomm QCOM popped on Monday morning after Broadcom AVGO made its massive buyout proposal public.

The official Broadcom announcement came after news began to surface late last week that the chipmaker planned to make a bid for Qualcomm. Broadcom’s proposal values the struggling semiconductor power at $130 billion, including $25 billion of net debt, according to the official news release.

The deal marks a 28% premium compared to Qualcomm’s closing price on Thursday—the last day of trading before news of the deal began to surface. In Broadcom’s proposed plan, Qualcomm stockholders would receive $70 per share, made up of $60 in cash and $10 per share in Broadcom stock.

"This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products,” Broadcom CEO Hock Tan said in a statement.

“We would not make this offer if we were not confident that our common global customers would embrace the proposed combination. With greater scale and broader product diversification, the combined company will be positioned to deliver more advanced semiconductor solutions for our global customers and drive enhanced stockholder value."

Broadcom projects that a combined company could effectively merge Qualcomm's cellular and wireless-based semiconductor business with its smartphone chip technology, data storage, and electronic displays business.

California-based Broadcom expects a Qualcomm buyout would create “enhanced scale, reach and financial flexibility,” which would help the combined firm “accelerate innovation and deliver more advanced semiconductor solutions to its broad global customer base.”

Qualcomm is still currently trying to negotiate a deal to buy fellow semiconductor company NXP NXPI. However, Broadcom made it clear that the company will try to complete its bid for Qualcomm whether the NXP deal goes through or not.

Still, despite the hope for creating a more diversified business, regulators will likely play a large role in Broadcom’s proposed deal.

Qualcomm is already dealing with its own regulatory concerns. South Korean and Taiwanese regulators have fined Qualcomm $853 million and $773 million, respectively, within the last year. Maybe more importantly, in terms of this new proposal, the U.S. Federal Trade Commission sued Qualcomm in January over antitrust concerns, although that case is still pending.

On top of that, one of Qualcomm’s big-name customers, Apple AAPL, sued the company for unfair patent-licensing practices and has since stopped paying royalties.

Shares of Qualcomm gained over 2% on Monday morning to hit as high as $65.32 per share. Before news of the deal began to surface, Qualcomm’s stock price had fallen nearly 5% on the year.

On the opposite side of the proposed deal, Broadcom’s stock price fell over 2% on Monday morning but remained near its new 52-week high, which it reached on Friday. The company’s shares have soared nearly 55% in 2017.

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QUALCOMM Incorporated (QCOM): Free Stock Analysis Report
 
Broadcom Limited (AVGO): Free Stock Analysis Report
 
Apple Inc. (AAPL): Free Stock Analysis Report
 
NXP Semiconductors N.V. (NXPI): Free Stock Analysis Report
 
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