Shares of Broadcom Ltd. (Nasdaq: AVGO) and Qualcomm (QCOM) both jumped Monday after Broadcom made an unsolicited offer of $130 billion for the mobile chipmaker.
Reports of the possible bid first surfaced on Friday, and investors seem to see the potential merger as a win-win for the companies involved. Over the past two trading days, Broadcom stock is up nearly 8 percent and Qualcomm stock is up nearly 17 percent. In pre-market trading on Monday, AVGO stock was up 2.4 percent and QCOM bumped up 5 percent.
At a price tag of more than $130 billion, the deal would be the largest technology mergerin history. Broadcom is offering $60 in cash and $10 in stock for each share of Qualcomm.
The deal is big news for other technology companies as well. Qualcomm sells chips to Apple (AAPL) for its iPhones and other devices, but Apple and Qualcomm are currently suing each other over several patent disputes and royalties charged to Apple. Apple is also one of Broadcom’s largest customers, and KeyBanc analyst John Vinh says Broadcom could amicably settle the dispute with Apple or simply get rid of Qualcomm’s licensing technology division altogether.
“We anticipate AVGO would leverage its healthy relationship with Apple to make amends and settle the strife between QCOM and AAPL by divesting [the licensing technology division] and would look to recover its baseband share in the iPhone, which is currently 50 percent,” Vinh says.
In addition to the potential impact on Apple, NXP Semiconductors (NXPI) stock plunged on Friday on fears that the Broadcom deal will threaten Qualcomm’s pending buyout of NXP. In its statement on Monday, Broadcom said its bid for Qualcomm stands whether or not the NXP buyout is completed.
But while NXP could be a big loser from the deal, Vinh says Cavium (CAVM) would be a winner. “We believe this acquisition would be positive for CAVM, as AVGO would look to shut down any non-cash- flow-positive project, such as the QCOM ARM server project,” Vinh said.
Qualcomm’s $64 share price on Monday morning suggests investors are skeptical of the buyout. Qualcomm management has said it intends to attempt to block the deal on the grounds that the current bid price doesn’t reflect the full value of the company. There are also antitrust concerns associated with combining two $100 billion companies.
For now, Vinh says…
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