Chipmaker Broadcom bids $130bn for rival Qualcomm

"Chipmaker Broadcom officially unveiled a $130bn offer, including net debt, for Qualcomm on Monday, in what could be the largest tech deal in history".

It's not a done deal, however. We refer investors to our November 3 note, written after Bloomberg and The Wall Street Journal surfaced rumors about the potential bid, but in short, we see a sound strategic rationale for such a deal, and the financial component is especially attractive for Broadcom because we value Qualcomm at $68 per share on a stand-alone basis.

It is said that if Broadcom merges with Qualcomm, combination of Broadcom with Qualcomm will make Broadcom third largest Chip makers in the world. Qualcomm will argue that the proposal is an opportunistic move to buy the chipmaker on the cheap, the people said, and it will likely recommend that shareholders reject it. The statement said that there would be no further comment from the company until the assessment was completed. In other words, don't expect this deal to close anytime in the near future.

We would not make this offer if we were not confident that our common global customers would embrace the proposed combination.
Since we now view Qualcomm as fairly valued at best after the bid, we don't necessarily believe that investors need to cash out on this news.

"We are positive on the potential of this acquisition as it would bring in complementary cellular products and cost synergies, leading to immediate earnings per share accretion". As of Monday, shares of Qualcomm are still about 8% lower than the $70 per share offer price. "We estimate Qualcomm/NXP Semiconductors would drive over $13 in earnings per share accretion and result in consolidated earnings per share of $32.06, resulting in fair value of $465".

And a premium of 33 per cent on Qualcomm's "unaffected 30-day volume-weighted average price".

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