Qualcomm is ordered to push back its annual meeting by the Committee on Foreign Investment in the U.S., disappointing Broadcom.
The Committee on Foreign Investment in the U.S. ordered Qualcomm
on March 5 to delay its annual meeting of stockholders and election of directors for at least 30 days so that the agency can fully investigate Broadcom Limited’s proposal to acquire the firm. We attribute the investigation to the fact that Broadcom is still domiciled in Singapore (though it plans to relocate to the U.S.) and could divest assets the U.S. deems critical to national security, including parts vital to the race to 5G, should the deal close. Broadcom was understandably disappointed by this move, releasing a statement that accused Qualcomm of requesting CFIUS to initiate an investigation to “entrench its incumbent board of directors and prevent its own stockholders from voting for Broadcom’s independent director nominees.” While Qualcomm responded by claiming that Broadcom has already been interacting with CFIUS, we concede that the delay should allow Qualcomm to close its acquisition of NXP Semiconductors prior to the new shareholder meeting date. Consequently, NXP would boost Qualcomm’s efforts to thwart Broadcom’s hostile takeover attempt, or at least increase Qualcomm’s negotiating leverage for a higher price, in our view. Despite the persistent back and forth, we are maintaining our $75 fair value estimate for narrow-moat Qualcomm and continue to see a modest margin of safety.
Abhinav Davuluri is a senior equity analyst for Morningstar.
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