There are plenty of potential benefits for both Qualcomm (QCOM) and Broadcom (AVGO) should the two tech giants merge, including cost synergies and a conclusion of Qualcomm’s legal disputes with Apple (AAPL). However, Qualcomm will likely reject Broadcom’s bid as “too low,” and opt to remain an independent company. When it comes to the companies’ sector competitors, they are probably hoping this deal completely falls apart.
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On Monday, Broadcom officially launched a takeover offer for Qualcomm for $70 per share, which values the company at about $103 billion. According to Reuters, this would be the biggest technology acquisition ever.
As a unit, the two companies would benefit from cost synergies, according to Canaccord Genuity, while the bank’s analysts also expect Qualcomm will reject this initial offer.
“We believe the combination could create shareholder value through potential accretion, synergies, increased share with Apple and Samsung; in addition, Broadcom could potentially settle the licensing dispute with Apple in a more-timely manner than could Qualcomm, given Broadcom’s strong relationship with Apple,” Canaccord Genuity analysts wrote in a note to clients.
They added that a combination of the two companies would create a dominant wireless business and overall powerful global semiconductor leader.
While Qualcomm and Broadcom stand to benefit, it would increase competition for other semiconductor companies, notes Canaccord Genuity. Companies that could be negatively impacted include Intel (INTL), NXP Semiconductor (NXPI), Qorvo (OORVO), Skyworks (SWKS) and CEVA (CEVA).
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Broadcom's $70-per-share offer is at a premium to Qualcomm's closing price of $54.84 on Thursday, a day before media reports of a potential deal pushed up the company's shares. The stock soared Friday, closing at $61.81 after The Wall Street Journal reported that Broadcom was considering a bid.
Broadcom’s shares are up about 53% year-to-date. Qualcomm’s shares are down over 3%, even after posting large advances on the speculation, and eventual reality of the takeover offer. Qualcomm’s share value has taken a hit from the legal battle with Apple. In its notes on the merger, Canaccord Genuity analysts believe Qualcomm’s shares have traded well below fair value.