Qualcomm Is About to Buy This Company

Last week, it was reported that QUALCOMM, Inc. (QCOM) may be interested in acquiring NXP Semiconductors NV (NXPI) in a deal that would value it at over $30 billion.

It is a rare occurrence when both the shares of the potential acquirer and the acquired company rise on the speculation. NXP Semiconductors is up almost 20% since the rumors started circulating whereas Qualcomm is up over 5%.

For me, it indicates that Qualcomm is getting a really good deal.

Expect a higher bid soon

However, I think that $30 billion may be too cheap for NXP Semiconductors.
In fact, I think long-term investors would be disappointed by the rumor—unless they were looking for a quick profit—as NXP Semiconductors could have easily doubled over the next five years.

With NXP Semiconductors now touching $100, I think investors should continue holding onto the stock. I doubt that NXP Semiconductors will sell itself for cheap, and given the consolidation in the semiconductor industry, I think the chances of this deal going through are high.

Although it is being reported that Qualcomm is also looking at other options, I think NXP Semiconductors will be the most likely candidate.

Moreover, buying NXP Semiconductors will boost Qualcomm’s foray into the driverless car market as well as the automotive segment.
Qualcomm Is About to Buy This Company
Image by / c1.staticflickr.com
NXP Semiconductors already has a strong presence in both of these markets, and the similarities would result in great synergies.

Due to this, I think NXP Semiconductors will likely hold out for a bigger offer.

But, Qualcomm’s balance sheet is not in a great shape to carry out such a big acquisition. The company only has a net cash position of around $6 billion. Even if Qualcomm partially pays for the deal in stock, it will still add considerably to its debt.

Still, given the earnings power of NXP Semiconductors and the savings from the cost synergies, I think the acquisition will be great for Qualcomm. Expect it to go though, just at a higher-than-reported price.

I am still bullish on both stocks.
Published on Oct 17, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

Posted in ...