It's not a done deal, however. Broadcom has said, however, that its offer stands irrespective of whether the NXP deal goes through or not. 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.
In a statement, the company said: "Qualcomm Board of Directors, in consultation with its financial and legal advisors, will assess the proposal in order to pursue the course of action that is in the best interests of Qualcomm shareholders". In other words, don't expect this deal to close anytime in the near future.
According to CNBC, Broadcom brought the offer to Qualcomm privately more than a year ago but was rebuffed.
We would not make this offer if we were not confident that our common global customers would embrace the proposed combination."Given the leverage required for the deal, there is potential Broadcom may spin-off or sell the [mobile chip] segment, which could lower the leverage required". We think NXP would also fit in reasonably well under the Broadcom umbrella, but we're surprised that Qualcomm's cash hoard isn't a requirement to fund Broadcom's bid.
Since publication Broadcom and Qualcomm have confirmed the offer, with Broadcom disclosing that the bid of $70 a share is made up of $60 cash and $10 in Broadcom shares. "We estimate Qualcomm/NXP Semiconductors would drive over $13 in earnings per share accretion and result in consolidated earnings per share of $32.06, resulting in fair value of $465".
There are now 27 buys, 2 holds and no sells on Broadcom with an average 12-month price target of $291.
And a premium of 33 per cent on Qualcomm's "unaffected 30-day volume-weighted average price".