Broadcom Inc.'s (AVGO) hostile bid for Qualcomm Inc. (QCOM) is an unusual case, and not just because the proposed $130 billion acquisition would be the largest tech deal ever. CEO Hock Tan is launching an unsolicited buyout of a very large company that is itself buying a very large company.
Qualcomm is trying to gobble up NXP Semiconductors Inc. (NXPI) , no small fish itself at a $47 billion valuation, including debt. Complicating matters, Paul Singer's Elliott Management Corp. argues that Qualcomm's offer of $110 per share is insufficient. NXP's closing price of $115.50 on Tuesday suggests that investors agree.
If NXP shareholders were looking for a merger premium, would a merger-within-a-merger involve an even sweeter payout? Apparently not so.
Broadcom's proposal is simple. Tan's chipmaker has offered $70 per share for Qualcomm whether or not it completes the purchase of NXP, which is strong in chips for autos and the Internet of things.
"That's really not paying a premium for the two companies combined," said Cody Acree of Drexel Hamilton LLC.
If Broadcom's timing seems awkward, it may have been motivated by Qualcomm's global licensing battle with Apple Inc. (AAPL) , which has weighed on Qualcomm. The stock is up just 1.23% to $66 this year, and before Broadcom's offer was down year-to-date. "Qualcomm management would see this as more of an opportunistic play to take advantage of some of Qualcomm's stresses before they could get the NXP deal done," Acree said.
Rather than a merger premium for a merged Qualcomm-NXP, said one analyst who requested anonymity, Broadcom's bid reflects a price equilibrium.
Qualcomm's bid of $110 per share in cash for NXP comes to $38 billion in total. If Qualcomm completes the deal, $38 billion of cash flows out of the company and it gains NXP. If it does not close, it loses NXP but holds onto $38 billion in cash. In either case, the relative valuation is arguably the same.
"They are basically saying there is an equilibrium," the analyst said. "That's what the franchise is worth."
Qualcomm has already tried to tamp down NXP's expectations for a larger payday. CFO George Davis told investors during an early November earning call that $110 per share is "a very full price" for the company.
The bottom line is that Broadcom may not be too keen on NXP.
Broadcom, which obtains 58% of its sales from its top 10 customers, might not want to deal with NXP's sprawling base of more than 25,000 customers, the analyst speaking anonymously suggested. The merger proxy for NXP's sale to Qualcomm indicates that it spoke with a number of semiconductor companies during its auction. The analyst suggested that Broadcom likely took a look and passed.
"I don't think they are trying to be cute," the person said. "It's not a sought-after asset to them."
Broadcom declined to comment.
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