Qualcomm, Inc. (QCOM) Stock Is the Big Loser as Trump Blocks Deal
The $117 billion proposed merger between Broadcom, Ltd. (Nasdaq: AVGO) and Qualcomm, Inc. ( QCOM) died a quick death on Monday evening, as the White House issued a statement ordering the two companies to abandon the merger plan due to national security concerns.
The news sent Qualcomm stock tumbling more than 4 percent in after-hours trading on Monday, but analysts were already been skeptical about the deal's completion.
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President Donald Trump's decision to block the Qualcomm buyout comes after the U.S. Treasury's Committee on Foreign Investment in the United States expressed concerns about the proposed merger.
In a statement, the White House agreed with the CFIUS that Broadcom's Singapore headquarters posed a problem.
"There is credible evidence that leads me to believe that Broadcom Limited, a limited company organized under the laws of Singapore (Broadcom) ... through exercising control of Qualcomm Incorporated (Qualcomm), a Delaware corporation, might take action that threatens to impair the national security of the United States," Trump says in a statement.
Investors and analysts had plenty of doubts about the deal's completion even prior to Monday's decision. Broadcom's most recent buyout offer for Qualcomm was priced at $82 per share, yet Qualcomm's stock closed Monday's trading session at just under $63 per share.
GBH Insights head of technology research Daniel Ives says both Broadcom and Qualcomm must now start from scratch in determining their next moves.
"The clear ramifications from tonight's move are negative for Qualcomm, as with M&A prospects off the table for the now the stock could tread water in the $60 range until the company can show on a stand-alone basis this fundamental recovery story can play out in 2018 and beyond," Ives says.
"Broadcom and [CEO Hock] Tan now have to go back to the drawing board to figure out their next strategic move in this Qualcomm saga, while starting to plot both offensive and defensive strategies in a consolidating chip industry poised to accelerate over the next 12 to 18 months," Ives says.
[See: 7 Dividend Stocks to Watch.]
Ives says Qualcomm remains a potential buyout target for other large chip makers. Oddly enough, the Wall Street Journal reported on Friday that Intel Corp. ( INTC) could potentially be interested in a buyout of Broadcom. On Monday, Bernstein analyst Stacy Rasgon said he "would be surprised" to see Intel make a bid for Broadcom.
Broadcom shares initially traded higher by 1.6 percent following the announcement.
Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.
