Everything You Wanted to Know About the Qualcomm Buyout Drama (But Were Afraid to Ask)

qualcomm-broadcom - Everything You Wanted to Know About the Qualcomm Buyout Drama (But Were Afraid to Ask)

Source: Shutterstock

Unless you’re a devoted and attentive owner of Qualcomm, Inc. (NASDAQ:QCOM), you may be feeling a bit confused about all the recent headlines. That is, the headlines referencing Broadcom Ltd (NASDAQ:AVGO) in particular. In fact, even if you are a close follower of the Qualcomm-Broadcom fiasco, there’s a good chance it’s all a bit overwhelming.

Don’t feel bad. It’s not your fault.

The Qualcomm-Broadcom story has become oddly complicated, reminiscent of the kind of alcohol-induced dealmaking one might expect to see in a game of late-night Monopoly in a college dorm.

Here are the Cliffs Notes if you’re trying to play catch-up.

Qualcomm Is Acquiring NXP Semiconductors

This deal has been in the works since the latter half of 2016, and has its merits. Qualcomm makes mobile processors, Wi-Fi chips and is a key part of the world’s 5G future. NXP Semiconductors NV (NASDAQ:NXPI) is also the name behind some high-tech connectivity hardware, and is particularly strong in the IoT and automotive arenas. The combination of the two organizations would create a monster that could cause trouble for everyone else in the mobile connectivity market.

Qualcomm is serious about the pairing, upping its offer from $110 per share to $127.50 per share last month, even if the motivation for the acquisition is to evade an acquisition by Broadcom … not that it’s mattered yet.

Broadcom Is Trying to Acquire Qualcomm

This is the piece of the puzzle that’s arguably the most complicated.

The pairing is another logical, synergistic one, in that Broadcom is neck-deep into Wi-Fi and 5G solutions. It’s also a player in the realm of connected cars. It could do a lot with Qualcomm, but could arguably do even more if NXP were in the mix.

Problem: Broadcom isn’t all that keen on a Qualcomm/NXP tie-up. If Qualcomm comes to an agreement with NXP Semiconductors, then Broadcom will only offer $79 per share of QCOM stock. If the deal with NXP isn’t consummated, Broadcom has committed to paying $82 per share of Qualcomm stock.

The two different offers may end up being moot, however, if the U.S. government’s concerns are a factor.

The U.S. Treasury’s Committee on Foreign Investment in the United States (or CFIUS) is charged with ensuring that all merger deals between U.S. companies and foreign companies are in the nation’s best interest and don’t pose a security threat. To that end, the fact that (1) Broadcom is Singapore-based and (2) any Broadcom cost-cutting could allow China to move ahead in the 5G race poses a threat to national security.

Broadcom is maneuvering to re-domicile in the United States (which isn’t a stretch, as much of its operation is already here). The move would theoretically negate the CFIUS’s jurisdiction since both organizations would then be U.S.-based entities. The company has also vowed not to sell 5G assets if Broadcom is permitted to acquire Qualcomm.

It’s still not clear if that will appease regulators to a Qualcomm-Broadcom deal, though.

Intel Might be Interested in Broadcom, If …

Intel Corporation (NASDAQ:INTC) has joined the party as well, though it’s still not clear exactly which side of the fence it stands on.

Its interest isn’t tough to understand. Intel has largely missed the advent of mobile technologies, and the union of Qualcomm and Broadcom could prove to be a major problem for Intel, muscling out of increasingly important markets.

Even if Broadcom and Qualcomm don’t end up together, the alarm bell has already been rung — consolidation within the wireless technology arena is going to happen sooner or later, one way or another. It’s better for Intel to be proactive rather than reactive, in that light.

As for what that exactly means in terms of immediate action isn’t clear. Some are suggesting Intel would acquire Broadcom if Broadcom acquires Qualcomm, while others believe Intel will only seek to acquire Broadcom if Broadcom is unable to acquire Qualcomm. Intel, of course, has said nothing on the matter … not that it matters to current and would-be owners of Qualcomm stock.

Bottom Line for Qualcomm-Broadcom

There’s certainly nothing more exciting than owning a stock that makes a big-time move on a buyout offer. In light of the sheer complexity of all these ifs, and or buts, however, there are several things that could go wrong (or badly), while there’s only one way for things to go right.

Never even mind the fact that, above all else, Qualcomm doesn’t want to be bought and is doing all it can feasibly to do make sure it isn’t.

In other words, if you were counting on a buyout-driven surge from QCOM, the 32% leap from October might be as good as it gets. From a risk/reward perspective, the smart-money move here may be walking away while most of that gain is still intact.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

Article printed from InvestorPlace Media, https://investorplace.com/2018/03/everything-you-wanted-to-know-about-the-qualcomm-buyout-drama-but-were-afraid-to-ask/.

©2022 InvestorPlace Media, LLC