This week, news has broken that Qualcomm (NASDAQ: QCOM) and Broadcom (NASDAQ: AVGO) are in the early planning stages of a potential merger. Both companies have commanding shares in microprocessor and other computer component markets, and both companies provide parts to all of the major world electronics manufacturers, including Samsung and Apple.
For anyone invested in tech stocks, it’s important to keep up to date with what’s happening in the market. Big changes in the industry will not only impact the companies that are concerned, but could also have knock-on effects with competitors or closely related businesses in the tech industry.
Microprocessor Manufactuers Merge, How Far Have Negotiations Gone?
News earlier this year suggested that Qualcomm was not interested in a purchase bid from Broadcom, however, investors could have other ideas.
Broadcom appealed to Qualcomm investors earlier in February, with a take it or leave it offer of $82 per share, which would value the company at around $146 Billion (Qualcomm Inc. currently is trading around the $65 range).
Executives at Qualcomm were not happy with the offer and said that Broadcom was undervaluing the company. Now it seems that negotiations are underway, at least in terms of an initial meeting going ahead. News mid-February revealed that both Qualcomm and Broadcom CEOs and board members had met in private to discuss Broadcom’s intent to buy, and any specifics that might surround the deal.
This doesn’t mean that a takeover will go ahead, but it at least suggests that members of the Qualcomm board are willing to explore options that could return money to their shareholders. Analysts believe that investors could eventually decide at Qualcomm’s annual general meeting later this year. If any deal does go ahead, then it would be subject to regulatory approval.
Is This Good News or Bad News for Investors?
If a takeover did go ahead, Qualcomm investors would make money on their current shares. The benefits for Broadcom investors would not be immediate.
From a business standpoint, it would put Broadcom in an even more powerful position than they are today. Broadcom supplies a number of equipment manufacturers but is underrepresented in the high end consumer market. Qualcomm products are used in high profile flagship smartphones, as well as in mid-tier and low end phones. Qualcomm has more general consumer brand recognition and this is something that Broadcom could capitalize on.
In the long term, it could mean more growth for Broadcom and higher stock values, which are already some of the best in the tech industry at $251 per share on February 16.
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