Analyst Chris Danely initiates coverage on both (Qualcomm, NXP Semiconductors), citing lack of confidence in synergies between the entities and expected integration challenges stemming from manufacturing and customer base differences, and NXP Semiconductor's Freescale acquisition.
Further considers long-term growth targets overly assertive given light licensing growth (1% CAGR over prior three years) and soft revenue growth (2% over next few years suggested) influencing royalty rates and average selling prices.
For NXP Semiconductors shares, notes trading should remain at a discount relative to the $110 takeover price given expected closure of the deal that's still a year out.
It's no surprise that Republican administrations in general are seen as more friendly towards mergers than Democrats, and since the election, arbitrage spreads (the difference between a target's deal price and its current price) have tightened to the 8-9% range from 11%.
However, on an annualized basis, there are still plenty of deals out there offering double-digit returns.
Merger-arb shop WallachBeth Capital is fan of Harman International Industries (NYSE:HAR), which earlier this month drew a cash bid from Samsung for $112 per share vs. its close Friday of $109.74. Another pick is B/E Aerospace (NASDAQ:BEAV) which closed at $59.79 and has a cash and stock deal in hand from Rockwell Collins (NYSE:COL) for $62 per share.
Lutetia Capital likes Cabela's (NYSE:CAB), which closed the week at $62.50 vs. Bass Pro Shops' $65.50 bid.
The Merger Fund's Roy Behren is confident Qualcomm's (NASDAQ:QCOM) bid for NXP Semiconductors (NASDAQ:NXPI) will pass regulatory muster. NXP's close yesterday of $99.51 is a full 10.5% below the $110 cash offer. If the deal closes in nine months, it's an annualized return of 12.6%.
Another deal with maybe overblown antitrust concerns is Danone/WhiteWave Foods (NYSE:WWAV). The spread is just 2%, but a close early next year would mean an annualized return over 10%.
Seeking Alpha contributor Chris DeMuth stays on top of merger arb spreads with his M&A Daily.
Romit Shah likes scale and expansion of total addressable market resulting from NXP Semiconductors deal and highlights projected 30% accretion in earnings, to $6 per share, for 2018.
Further considers Qualcomm not fully owned among institutional investors in comparison to peers (Applied Materials, Broadcom, Texas Instruments cited) and despite outperformance on the year so far, notes shares have performed below-sector and below-market for extended periods of time.
Qualcomm (NASDAQ:QCOM) +0.80%, NXP Semiconductors (NASDAQ:NXPI) +0.06% at the open.
With the help of a very big deal -- AT&T's (NYSE:T) $85B offer for Time Warner (TWX -0.9%) -- companies have set a monthly record for merger and acquisition activity.
Firms have agreed to M&A valued at more than $251B this month, Dealogic says. That surpasses a previous record month, July 2015, at $240B. The tech sector (signified most recently by Qualcomm's (QCOM -2.4%) $39B deal for NXP Semiconductors (NXPI +0.7%)) has accounted for a fourth of U.S.-targeted deals and 19% by value, just ahead of healthcare.
Last week was especially hot, with $177B in activity (itself a record for an M&A week).
Qualcomm (NASDAQ:QCOM) has agreed to buy NXP Semiconductors (NASDAQ:NXPI) in a deal that values the chip maker at $110 a share, or $47B, including debt, as it seeks to expand the reach of its chips from phones to cars.
The combined company is expected to have annual revenues of more than $30B, serviceable addressable markets of $138B in 2020 and leadership positions across mobile, automotive, IoT, security, RF and networking.
RBC Capital Markets analyst Amit Daryanani notes a deal would mark a good use of cash for Qualcomm, increase its portfolio diversity, allow it to leverage IoT plans into automotive and other sectors and potentially offer material accretion over upcoming years. On the other end, Daryanani points out some concerns for Qualcomm relating to debt position and integrations of NXP Semiconductors stemming from the latter's recently closed Freescale merger.
Bernstein's Stacy Rasgon and Jefferies' Mark Lipacis comment on potential buyout prices, offering respective approximate $120 and $136-$172 ranges.
NXP Semiconductors (NXPI +7.1%) is trading higher by around 25% since mid-day yesterday while Qualcomm (QCOM +2.9%) is up over 10% on the same term.
Xilinx (NASDAQ:XLNX) is up 5.9% this afternoon on heavy volume after a StreetInsider report saying the company has drawn a $15B takeover offer, but from a mystery suitor.
The company has been considered the only large-cap chipmaker with the attributes of a good target, after Intel's purchase of Altera. Apple suppliers including Qualcomm (NASDAQ:QCOM) or Broadcom (NASDAQ:AVGO) are the most likely suitors for Xilinx.
Xilinx used yesterday's analyst day to reiterate guidance for fiscal 2017 (sales growth of 4-8%, opex growth of 7-9%) and prompt strong bullishness from Pacific Crest. Analyst John Vinh sees the firm taking share in field-programmable gate arrays from Intel's Altera, which has faced delays and has "already lost at 20 nm and 14 nm."
Xilinx is expecting $750M in incremental revenue over the next five years, a modest 6% in compound annual growth. "Of the $750 million, $500 million is expected to be from market expansion, while $250 million should be from PLD share gains. This would imply ~$3.25 in EPS, which at 20x suggests fair value of $65," Vinh writes.
That $65 value would be 37% upside from today's (higher) price; Vinh has a price target of $55 (16% upside).
William Blair's Anil Doradla thought the overall tone was good but "lacked conviction" and was light on comment about the company's key wireless/wireline segments. He's maintaining an Outperform rating.
Enterprise software firm PTC is buying Qualcomm's (NASDAQ:QCOM) Vuforia augmented reality technology unit, and acquiring the related developer ecosystem.
Re/code reported in September Qualcomm is thinking of selling Vuforia, which provides developer tools and IP for creating apps supporting augmented reality (i.e. the melding of real-world and computer-generated material). Qualcomm has claimed Vuforia is supported by 175K+ developers and has been used by 20K+ apps.
Update: While Qualcomm didn't announce the deal price, PTC states it's paying $65M for Vuforia. The company expects the purchase to close by year's end, and doesn't expect it to impact 2016 EPS.
Capsule Technologie (not a typo) provides a platform (known as SmartLinx) for connecting, integrating, and analyzing medical device data, as well as for sending time-sensitive clinical data and alerts, to 1,800+ hospitals in 38 countries. Qualcomm (QCOM -0.9%) has bought the company for an undisclosed sum.
Qualcomm president Derek Aberle suggests there are synergies between Capsule's offerings and Qualcomm's connectivity chip business for embedded/IoT devices. "Qualcomm is focused on strengthening its position in specific Internet of Everything verticals, like healthcare. The acquisition of Capsule expands the breadth of our healthcare platform, enabling us to provide connectivity solutions for the entire care continuum and create one of the world's largest connected health ecosystems."
The acquisition is being made by the healthcare-focused Qualcomm Life subsidiary, which launched in 2011 and offers a cloud-based medical device data integration solution called 2net. Earlier this year, Qualcomm announced a partnership with Novartis in which 2net will be used to collect medical device data produced during Novartis clinical trials.
Qualcomm (QCOM -0.5%), via its Atheros Wi-Fi/connectivity chip unit, is buying DSL modem/infrastructure IC and home gateway processor vendor Ikanos (NASDAQ:IKAN) for $2.75/share, or roughly $47M based on Ikanos' Q2 diluted share count. The price represents a 57% premium to Ikanos' Wednesday close. The deal is expected to close by year's end.
Ikanos' products complement Qualcomm/Atheros home Wi-Fi and wireline networking offerings. Qualcomm: "The combination of Qualcomm Atheros' broad home gateway IP portfolio, including Wi-Fi, powerline, small cell, and Ethernet switch technologies, and Ikanos' advanced wired modem technology, is designed to create a complete solution for a wide range of home gateway products to better serve the carrier segment." Broadcom (NASDAQ:BRCM) and Marvell (NASDAQ:MRVL) are among the other companies competing in this space.
Qualcomm CEO Steve Mollenkopf suggested last week his company would make new chip acquisitions.
"Qualcomm (QCOM +0.2%) is very likely to be some form of actor in the consolidation of the semiconductor industry," CEO Steve Mollenkopf tells Bloomberg. “The timing of which is always the debate.”
The remarks come a week after Qualcomm said it would (following pressure to do so from Jana Partners) consider a breakup, along with other strategic options. There has been some speculation Qualcomm's chip unit (QCT) could merge with Intel (has been seeing heavy mobile division losses) following a spinoff; antitrust regulators would closely vet such a deal. Others have argued Qualcomm could by an RF chipmaker such as Skyworks or Qorvo, or (with the goal of expanding into the data center) acquire an ARM server CPU developer.
Qualcomm hasn't exactly been averse to M&A in recent years. Noteworthy acquisitions since 2011 include Atheros (Wi-Fi chips), Wilocity (WiGig chips), and CSR (Bluetooth/Wi-Fi chips).
Update: Some other Qualcomm news of interest: Mollenkopf discloses he bought 15,815 shares yesterday at $63.31, and CFO George S. Davis discloses he bought 8,100 shares yesterday at $62.34.
With the possibility of a Qualcomm (NASDAQ:QCOM) split afloat, an interesting piece of analysis has surfaced on Wall Street, pointing towards Intel (NASDAQ:INTC) as the best possible beau if the firm decides to break itself up.
"The chip deal to end all chip deals," said Cowen analyst Timothy Arcuri.
Other suitors for Qualcomm's chip business, valued at $30B-$40B, could include a consortium backed by the Chinese government and Samsung Electronics (OTC:SSNLF).