Following up on reports last Friday, Broadcom (AVGO 279.15, +5.52, +2.0%) did indeed make an offer today to acquire Qualcomm (QCOM 64.42, +2.61, +4.2%). It's no small offer either. Including the assumption of Qualcomm's net debt, the transaction would be valued at $130 billion, making it the largest deal ever in the technology sector if it is completed.
There is a big "if" with the big offer. It won't be the largest deal if Qualcomm doesn't accept it, and there are reports that Qualcomm is going to turn down the offer, which equates to $70.00 per share in cash and stock, with $60.00 in cash and $10.00 per share in AVGO shares.
That's a 28% premium over QCOM's closing price on November 2, which was the last unaffected day of trading prior to the speculation in the media about a potential deal.
There is chatter in the analyst community that $70.00 per share undervalues Qualcomm. It probably does, as the first offer in what could amount to a hostile takeover bid is rarely the best offer.
It's a starting point, though, to take Qualcomm's temperature and investors' temperature about a possible merger, which would bring together two of the largest makers of semiconductors for wireless phones. Apple (AAPL 172.50) is one of Broadcom's largest customers, whereas, Qualcomm derives more than 10% of its revenue from suppliers to Apple and Samsung Electronics.
The offer also stands whether or not Qualcomm completes its own effort to acquire NXP Semiconductors (NXPI 115.02) for the currently disclosed terms of $110 per share.
Shares of QCOM are up 4.2% in pre-market trading, yet remain comfortably below the $70.00 per share buyout offer. The stock saw a big boost on Friday as speculation hit regarding a potential merger, yet the decent-sized gap between the offer price and QCOM's price suggest there is some skepticism this deal can be completed.
That skepticism could be grounded in antitrust concerns and/or a lack of belief in Broadcom's ability to make an offer that would entice an approval from Qualcomm's board of directors and shareholders.
Broadcom's board unanimously approved the offer, which Broadcom thinks can close within approximately 12 months following the signing of a definitive agreement.
The proposed transaction is not subject to any financing condition, but it is subject to Qualcomm's approval and that has yet to be given.