Broadcom (BRCM) Stock Falls After European Commission Approves Avago Takeover Bid - TheStreet

NEW YORK (TheStreet) -- Broadcom (BRCM) stock is down by 0.06% to $53.50 in pre-market trading on Monday, after the European Commission approved the company's acquisition by AvagoTechnologies (AVGO).

Singaporean semiconductor company Avago is buying Broadcom, a rival chip-making company based in Irvine, CA, for $37 billion. If the deal goes through, the combined company would be the third-largest chip-maker in the world, Reuters reported. 

The European Commission determined that the merged entity would continue to face effective competition in Europe, the regulatory group said in a statement today.

"The Commission had some concerns about the vertical relationship created by the transaction, since Avago supplies certain intellectual property to some of Broadcom's competitors," the statement said. "The Commission's concern was that after the takeover Avago could have had an incentive to withhold this intellectual property in order to extend the merged entity's leading market position in the so-called 'switch chips' market."

In response, Avago said it will enter into commercial agreements with other manufacturers to ensure that they will have access to intellectual property on reasonable terms.

"Thanks to very good cooperation with the companies the Commission has been able to approve this multi-billion dollar takeover within a very short space of time while preserving effective competition in this crucial high-technology sector," European Competition Commissioner Margrethe Vestager said in a statement. 

Separately, TheStreet Ratings team rates BROADCOM CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

We rate BROADCOM CORP (BRCM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Powered by its strong earnings growth of 331.25% and other important driving factors, this stock has surged by 26.04% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • BROADCOM CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, BROADCOM CORP increased its bottom line by earning $1.08 versus $0.74 in the prior year. This year, the market expects an improvement in earnings ($2.83 versus $1.08).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 337.8% when compared to the same quarter one year prior, rising from $98.00 million to $429.00 million.
  • BRCM's debt-to-equity ratio is very low at 0.16 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.12, which clearly demonstrates the ability to cover short-term cash needs.
  • You can view the full analysis from the report here: BRCM

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.