Nomura: Qualcomm Has 'Gun To Its Head' With Broadcom's Hostile Takeover Attempt

It’s do or die for QUALCOMM, Inc. QCOM. Amid a hostile takeover bid from Broadcom Limited AVGO, Qualcomm received an upgrade from an analyst who said positive catalysts are emerging for a once-complacent tech company.

The Analyst

Romit Shah of Nomura upgrades Qualcomm from a Neutral to a Buy rating and raised his price target from $58 to $75.

The Thesis

The Qualcomm leadership team is renowned in the industry, but over the last several years, "the San Diego-based management team at times has been unassertive and complacent," Shah said in a Tuesday note. (See the analyst's track record here.) 

Broadcom's attempted hostile takeover of Qualcomm has the company in fight-or-flight mode, Shah said, likening the situation to a “gun to the head." The analyst said he now expects the company to act aggressively to drive shareholder value in order to remain independent. 

The analyst listed the closure of the NXP Semiconductors NV NXPI acquisition, earnings expected in late January, a settlement with Apple Inc. AAPL and new senior management as key catalysts that led to the upgrade.

“With much at stake, we expect management to aggressively focus on driving shareholder value through several different ways. The first and perhaps most significant driver is closure of the NXPI acquisition. We expect QCOM to gain regulatory clearance in short order,” Shah said.

According to a Wall Street Journal report, the European Union is conditionally set to clear the acquisition this week. The analyst said he expects to see similar approval from China soon after.

In a letter to shareholders, Qualcomm said that Broadcom's $103-billion hostile bid dramatically undervalues the company and stated its preference to remain an independent entity.

“The math is clear — on a near-term basis alone, Broadcom’s proposal dramatically undervalues Qualcomm, without even taking into the substantial longer-term updside from 5G,” according to Qualcomm. “No matter how you look at it, Broadcom’s proposal is not worthy of a discussion from a value perspective.”

Broadcomm fired back on Monday in a statement of its own that was listed prominently on the company website.

“Qualcomm management has repeatedly overpromised and underdelivered since the announcement of its ‘strategic realignment plan’ in 2015, resulting in an inability to meet financial targets as well as deteriorating profitability and destruction of stockholder value,” the company said.

“Qualcomm's approach is a transparent attempt to sell a quick fix by the Qualcomm board of directors and management team and an obvious tactic to deny its own stockholders the opportunity to receive a compelling premium for their shares and significant upside potential in the combined company.”

Price Action

Shares of Qualcomm were up 4.8 percent at $68.52 at the time of publication. 

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