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$130 Billion Takeover to Shake Up the Chip Industry?

Bloomberg Gadfly columnist Brooke Sutherland and Christopher Rolland, an analyst at Susquehanna Semiconductor, examine Broadcom Ltd.'s $105 billion offer for Qualcomm Inc. on "Bloomberg Daybreak: Americas."

Semiconductor maker Broadcom made a bid to acquire its rival Qualcomm today in a deal that would be the largest takeover in the tech industry to date.

Broadcom has offered to buy all of the outstanding shares of Qualcomm for $60.00 in cash plus $10.00 per share in Broadcom shares.

The proposed deal would amount to roughly $130 billion and instantly propel Broadcom to third place in the global semiconductor industry.

As our chart illustrates, Broadcom and Qualcomm had a combined market share of 7.4 percent in the ever-growing semiconductor industry last year.

Broadcom's offer comes at a surprising time, considering that Qualcomm is currently entrenched in a legal battle with one of its biggest customers, Apple.

After the iPhone maker had sued Qualcomm for "charging royalties for technologies they have nothing to do with", the chipmaker sued Apple back for allegedly sharing information with semiconductor market leader Intel.

Broadcom Tests the Limits of Semiconductor M&A

Brooke Sutherland, Bloomberg Gadfly columnist

“A Broadcom-Qualcomm deal smacks of peak M&A among semiconductor makers”Brooke Sutherland,
Bloomberg Gadfly columnist 

How many mega-sized semiconductor deals are too many?

That's the question Broadcom Ltd. shareholders should be asking themselves as the chipmaker launches a $130 billion-plus takeover bid for Qualcomm Inc.

The target company has said it will assess the deal, but it's reportedly gearing up to reject Broadcom's $70-a-share cash and stock bid on the grounds that it's opportunistic and poses regulatory risks. These are valid objections, but we've got another one: integration risk.

This would hardly be the first megadeal that either has attempted. Broadcom is the product of a $37 billion merger between Avago Technologies Ltd. and Broadcom Corp. in 2016. Broadcom is also trying to buy Brocade Communications Systems Inc. for $5.9 billion, only about a year after the target company agreed to buy Ruckus Wireless for about $1 billion.

Meanwhile, Broadcom says it's also willing to include Qualcomm's proposed $40 billion-plus purchase of NXP Semiconductors NV in its offer for Qualcomm, should that deal get completed. Don't forget that NXP itself purchased Freescale Semiconductor Ltd. for $17 billion in 2015.

A Broadcom-Qualcomm deal smacks of peak M&A among semiconductor makers. And it may only get more expensive and complicated should Qualcomm successfully negotiate a higher price.

Source: Brooke Sutherland, Bloomberg Gadfly 

 

Global semiconductor sales have risen sharply over the past two decades as the rise of mobile devices has led to a steep increase in demand for microprocessors and memory chips.

In 2016, worldwide semiconductor sales amounted to roughly $340 billion, up from $204 billion at the turn of the millennium.

Global market share of the largest semiconductor vendors in 2016

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