Broadcom’s Could Derail Qualcomm/NXP Semiconductor

Broadcom’s (NASDAQ: BRCM) offer for buying out Qualcomm (NASDAQ: QCOM) may prove bad news for Qualcomm’s NXP Semiconductor (NASDAQ: NXPI) bid. Qualcomm is getting a $70 per share offer. Broadcom will need to raise the bid to thwart the NXPI buyout and successfully acquire Qualcomm.

Qualcomm is in a tricky spot. Shareholders will demand at least $80 a share from Broadcom. But NXPI shareholders want more, too. If NXPI senses it can get more, it could break from the deal, leaving Qualcomm more vulnerable to Broadcom.

QCOM and NXPI shares are ultimately undervalued even with the pending buyouts. But under Broadcom, the consolidation would likely protect the royalty rates and give the bigger company more negotiation power over Apple (NASDAQ: AAPL). For now, Apple’s complaint over Qualcomm’s royalty rates could cut costs for the iPhone supplier if the courts rule in its favor.

NXP would owe $2 billion to Qualcomm if it tries to break from the deal before April 2018. A failure to get regulatory approval would leave NXP with no fees owed. More likely is that Apple’s case against Qualcomm will not hold up in court. Apple is ultimately looking for better royalty rates for 5G. If Qualcomm prevails, QCOM stock is worth $90 or more and Broadcom’s bid will be seen as opportunistic and timely.