I wrote this in November when BRCM made the first move:
This explains why, after QCOM rejecting the $103B initial offer by BRCM yesterday, its share price did not fall back to the pre-offer level and the market cap held steady at $97B. Wall Street is expecting a new offer from BRCM and a non-zero probability for the deal to go through.
Well, BRCM just upped its offer for QCOM from $103B to $121B in a "best and final" offer. The market reaction was interesting though. QCOM's share price actually fell following the news, leading to a $62 share price and a $91B market cap. It's true that recent speculation of Apple dropping QCOM and go for Intel to supply its modem could be the reason of the fall. However, if the $121B acquisition can go through, the market should not care about whether Apple drops QCOM or not.
Devil lies in the details:
Broadcom’s new $82 per share offer included $60 in cash and $22 in Broadcom stock. Its first offer, of $70 per share, in November comprised $60 in cash and $10 in stock. The increased stock component would subject the deal to a Broadcom shareholder vote.
Turns out the extra $12 increase in the offer is all coming in BRCM shares, not cash. The cash part remains at $60, which is almost the same as the current QCOM share price of $62.
Funny enough, BRCM (AVGO)'s share price actually went up the moment the new offer was announced and the share price of QCOM fell:
Both trended lower throughout the day in almost parallel fashion.
So what's happening here? I think it's the combination of a couple of things:
- Investors still don't think the new offer would guarantee the deal to go through 100%, otherwise QCOM's share price should be $82.
- The risks that the market worries about could be anti-trust or QCOM's inability to get out of the NXP buyout to be cleanly sold to BRCM.
- But the probability is not 0% either, as reflected by the QCOM share price not going back to the pre-November level. (Granted, the market and the prospect of QCOM itself also changed over the past couple of months, Apple's news being one of them.)
Given that this is the final offer and the market price did not converge to $82 or fall back to pre-initial-offer range, the market is probably scrambling to do all kinds of anti-trust research or checking with officials they know. EU could also be a key stakeholder that could potentially block the deal, given that they've fined QCOM for anti-trust behaviors before. I imagine quite a few lawyers representing QCOM, BRCM and Wall Street are very busy in Brussels now, taking temperatures of the officials.
Let's watch on.