Yesterday evening, President Trump cried national security and demanded Broadcom Ltd (NASDAQ:AVGO) retreat its offer to buy QUALCOMM, Inc. (NASDAQ:QCOM)- leaving QCOM investors sending shares diving 5% in pre-market trading this morning.
The president likewise forbade Broadcom’s potential candidates eyeing election at QCOM’s postponed board meeting in April. According to a statement from the Trump administration, “credible evidence that leads me to believe that Broadcom through exercising control of Qualcomm might take action that threatens to impair the national security of the United States.”
GBH Insights analyst Daniel Ives says true- Broadcom could always theoretically argue against the move.
However, the analyst more likely sees this as eradicating all possibilities of the M&A deal coming to fruition. Calling Trump’s move “a major gut punch to those Qualcomm bulls hoping this soap opera could end with a bid following pressure from the shareholder meeting […],” the analyst underscores this as an unfortunate “knock out” to Broadcom’s hopes to buy out Qualcomm.
Notably, this follows the Committee on Foreign Investment in the United States (CFIUS) decision that pinpointed apprehensions circling the proposed deal on March 5th. The reason for apprehension? Broadcom’s “reputation” in dialing down R&D expenses along with prospective national security risks “front and center.”
All the same, Broadcom had geared to try to advance its intended headquarters move from Singapore to the U.S. to salvage the M&A agreement. Perhaps backfired, Ives muses, as the effort seems to have done the exact “opposite” and may have left the U.S. with “ruffled” feathers.
Bottom line, this is bad news for Qualcomm investors, as far as Ives is concerned. “The clear ramifications from tonight’s move are negative for Qualcomm as with M&A prospects off the table for the now the stock could tread water in the $60 range until the company can show on a standalone basis this fundamental recovery story can play out in 2018 and beyond. While Qualcomm still remains an M&A candidate for another chip player, this deal dissolving is a clear positive for Intel which is in a further position of strength with the potential marriage of Broadcom and Qualcomm now broken up by the Beltway before it even got to the altar. Broadcom and Tan now have to go back to the drawing board to figure out their next strategic move in this Qualcomm saga, while starting to plot both offensive and defensive strategies in a consolidating chip industry poised to accelerate over the next 12 to 18 months,” concludes the analyst.
TipRanks highlights an analyst consensus split between the bulls and those playing it safe- but the bulls win out when it comes to Qualcomm’s market opportunity. Out of 10 analysts polled in the last 3 months, 7 are bullish on QCOM stock and just 3 remain on the sidelines. With a healthy return potential of nearly 18%, the stock’s consensus target price stands at $74.00.