Qualcomm, Inc. (QCOM) Buyout Prospects Looking Dim
Even after Broadcom Ltd. (Nasdaq: AVGO) raised its buyout bid for Qualcomm, Inc. ( QCOM) from $70 per share to $82 per share this week, it looks like the deal's completion may still be a long shot. On Thursday, the Qualcomm board once again expressed major concerns about the deal and says it sees "no next step" to getting it done.
Qualcomm says the proposed deal would likely have a difficult time gaining regulatory approval and could end up damaging Qualcomm's business.
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"The board has unanimously determined that your amended offer materially undervalues Qualcomm and falls well short of the firm regulatory commitment the board would demand given the significant downside risk of a failed transaction," Qualcomm says in its repsonse.
Qualcomm says the proposed deal exposes the company to "significant customer and licensee risk" and could leave Qualcomm "enormously and irreparably damaged" if the deal gets rejected by regulators. Qualcomm says two customers responsible for more than $1 billion in annual chip sales told the company they would be likely to turn to Qualcomm competitors if Broadcom pursued the Qualcomm merger further.
Earlier this week, CNBC reported Broadcom is prepared to pay a $10 billion break-up fee for the deal.
The Qualcomm board also rejected Broadcom's initial $70 bid and board nominees in November, saying the buyout price did not fully reflect the value of Qualcomm's business. When Broadcom announced the new bid this week, it said $82 was its "best and final offer" for Qualcomm.
The market has been skeptical that the blockbuster tech deal would be completed from the beginning. Qualcomm stock finished Thursday's session at $62.42, more than a 30 percent discount to the proposed buyout price.
Morningstar analyst Brian Colello says Qualcomm management is right to question the price of the buyout.
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"We're not surprised by the revised bid, as we have believed for the past couple of months that Broadcom could reasonably take its bid as high as $85 per share and still see nice accretion from the deal," Collelo says.
CFRA analyst Angelo Zino says price is not the primary concern.
"We see a low probability of QCOM being acquired by Broadcom, primarily given regulatory concerns," Zino says.
CFRA has a "hold" rating and $70 price target for Qualcomm. Morningstar has a "fairly valued" rating and $75 fair value for QCOM stock.
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