Shares of Qualcomm, Inc. (NASDAQ:QCOM) and NXP Semiconductors NV (NASDAQ:NXPI) have been off to the races recently, both soaring double-digits following a Sept. 29 Wall Street Journal report that a possible merger between the two is in the works. While a deal likely won’t be reached for several months, it could be worth as much as $30 billion, which would be good news for QCOM stock.
Neither company has released an official statement yet, but if the deal were to go through it would mark the largest acquisition in Qualcomm’s history.
To me, the merger is a no brainer, but let’s take a closer look at the specifics.
What Could This Deal Add to QCOM Stock?
Qualcomm is the largest mobile chipmaker in the world and it is currently in the process of diversifying its business beyond handsets such as smartphones and tablets. QCOM is targeting areas like wearables, drones and connected cars, and that’s where NXP Semiconductors comes into the picture.
NXPI is a favorite of mine as it underscores the potential in technology, and it recently became the largest automotive chipmaker following its $12 billion acquisition of rival Freescale. A merger between these two giants would create a behemoth in the connected cars industry.
Valuation is where talks are hitting a roadblock. NXPI is looking for a sale price closer to $120 a share and would prefer an all-cash offer, while Qualcomm’s goal is somewhere close to $110 a share. In addition, QCOM management is considering a 75% cash, 25% stock agreement — as opposed to all cash. That’s not a huge gap, but I think there’s still a ways to go here.
As I mentioned, I think this deal is a no-brainer for QCOM stock, especially as the race for smart cars heats up. I expect this technology will become a reality sooner than even the most optimistic dreamers a few years ago expected.
The big question when it comes to any acquisition is how will the new entity fit into current operations? Well, I think Qualcomm and NXP Semiconductors are an almost perfect fit. But that doesn’t mean it’s a done deal. There’s even a chance other bidders will emerge — such as Texas Instruments Incorporated (NASDAQ:TXN) and Broadcom Ltd (NASDAQ:AVGO) – to pressure the talks.
In the end, I think the winning bid will come in somewhere between $120 and $160 a share. Regardless, there is a fair amount of upside potential for QCOM stock.
Curious what Wall Street insider Charles Payne really thinks? Get more behind-the-scenes insights, valuable market research and hands-on guidance including live stock recommendations from Fox Business’s rising star. Charles Payne’s Smart Talk is absolutely FREE for a limited-time only. Sign up today!