What Qualcomm Tie-Up Means for Broadcom Bid
The acquisition of NXP for $44 billion makes Qualcomm a relatively less attractive target for Broadcom.
On Feb. 20, Qualcomm (QCOM) reached an agreement with NXP Semiconductors to raise its bid for NXP to about $44 billion, or $127.50 per share. We had been expecting Qualcomm to do so, as NXP has outperformed since the initial deal announcement in 2016, with NXP shares recently trading around $118 versus the original $110 deal price. While Qualcomm still requires approval from Chinese regulators, its increased bid does not deter our positive view on the strategic tie-up with NXP, particularly in automotive. In the amended agreement, Qualcomm has reached binding terms with nine major stockholders that account for 28% of outstanding shares (including Elliott Advisors, a notable holdout from the prior $110 bid), while also lowering the minimum shares to be tendered to 70% versus 80%. We view these factors favorably, as they should allow Qualcomm to expeditiously close the deal. The updated bid serves a dual purpose, as Qualcomm is simultaneously fending off a hostile bid from Broadcom, and a higher price paid for NXP could thwart that attempt. We will likely maintain our $75 fair value estimate for narrow-moat Qualcomm and continue to see a modest margin of safety.
From the Qualcomm-Broadcom merger perspective, the deal makes Qualcomm a relatively less attractive target for Broadcom. Broadcom has stated that it will proceed with its bid for Qualcomm (currently at $82 per share) regardless of whether Qualcomm abandoned its NXP bid or closed the deal at its original $110 deal price, but it was publicly against a price higher than $110 for NXP. We will also maintain our $255 fair value estimate for narrow-moat Broadcom and view shares as fairly valued, again as our Broadcom valuation is not contingent on a merger with Qualcomm.
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Abhinav Davuluri does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.