Wireless chip manufacturer Broadcom has officially bid to buy its rival Qualcomm in a deal worth up to $130 billion. Rumors of the acquisition started popping up yesterday, and the offer will likely kick off a pitched battle between the two companies and regulators around the world. We will maintain our fair value estimates of $68 for narrow-moat Qualcomm and $203 for narrow-moat Broadcom, but we would probably raise our fair value estimate for Broadcom-perhaps as much as 25%-if a definitive deal were reached.
Reports claim the merger between Broadcom and Qualcomm would create a company with a market capitalisation of more than $200 billion and would be one of the biggest takeovers in technology sector history.
Perhaps the most important new news on the bid is that Qualcomm is expected to reject this deal as it undervalues the company.
Qualcomm is now trying to close its pending $38-billion acquisition of NXP Semiconductors, a leading supplier of chips for vehicles that is also expanding into self-driving technology, and it is believed that Broadcom is open to acquiring NXP. Here's a wrap of what they've said so far.
"We would not make this offer if we were not confident that our common global customers would embrace the proposed combination", Tan said in a statement.
If the acquisition were to be successful, the merged companies would sit at third place in the chip-making industry, behind Intel and Samsung at second and first place, respectively. "Our proposal provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company", said Hock Tan, president and chief executive officer of Broadcom.