Qualcomm expected to keep their extra m and say no to Broadcom

Broadcom bids $130 Billion to acquire Qualcomm

We refer investors to our November 3 note, written after Bloomberg and The Wall Street Journal surfaced rumors about the potential bid, but in short, we see a sound strategic rationale for such a deal, and the financial component is especially attractive for Broadcom because we value Qualcomm at $68 per share on a stand-alone basis.

Broadcom president and CEO Hock Tan called the proposal "compelling for stockholders and stakeholders in both companies", and claims a deal would position the combined company as "a global communications leader".

Broadcom is up 2.31% to $279.95 and Qualcomm is up 4.57% to $64.63.

While the value of the proposed bid has yet to be made public it is expected that the offer will be in the range of around $70 to $80 per share, valuing Qualcomm at over $100billion.

It is likely that Qualcomm will reject the bid, as it believes that its value is far below what the company is worth.

Broadcom also is waiting on regulatory approval to purchase San Jose's Brocade Communication Systems for $5.9 billion.

Shares of Broadcom have rallied this year while Qualcomm has fallen, making the target more vulnerable.

It is said that if Broadcom merges with Qualcomm, combination of Broadcom with Qualcomm will make Broadcom third largest Chip makers in the world. The forward price-to-earnings ratio for Broadcom recently stood at 14.6, slightly above its 13.5 average. Broadcom already provides designs for Wi-Fi and Bluetooth chips, and by bringing in Qualcomm it will be able to encompass LTE and 5G capabilities.

Adjacent products are often cheaper when offered by one company, according to standard economic theory, which could be good for phone makers and potentially incline regulators toward allowing the deal, said Henry C. Su, a former Federal Trade Commission trial attorney.

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