The Street is waiting for the next shoe to drop in Broadcom's (AVGO) pursuit of fellow chip giant Qualcomm (QCOM).
Broadcom's offer from a week and a half ago to Buy Qualcomm was rejected on Monday by Qualcomm's board; almost immediately, some Street observers said Broadcom might go hostile in its bid.
Mixed up in all this is Apple (AAPL), Qualcomm's lead customer, which is involved in several layers of litigation and regulation over what it claims are unfair licensing by Qualcomm of its baseband modem chips that go into the iPhone.
Cowen & Co.'s Karl Ackerman today offers up the potential regulatory solution to all this, including Apple's involvement, drawing upon the insights of his colleague covering the Beltway trends, Paul Gallant.
"We think Apple's influential role at the FTC in a potential Avago-Qualcomm deal could catalyze a new licensing arrangement with Qualcomm that would facilitate merger approval and perhaps lead the FTC to withdraw its antitrust lawsuit against Qualcomm," writes Ackerman, who has an Outperform rating on Broadcom stock, and a $270 price target.
Likewise, "Avago's appetite for Qualcomm could be the catalyst that breaks the logjam between Apple and Qualcomm."
Given the growing worldwide antitrust pressure on Qualcomm's licensing model, we assume Avago would not undergo merger review before an agency with an antitrust lawsuit already filed against it if Avago weren't willing to entertain significant revisions to its licensing model. We're not saying such a revision would be easy for Avago/Qualcomm to reach with Apple. Apple already feels mistreated by patent law enforcement after the outcome in Apple v Samsung, so having this leverage over Qualcomm on patents could lead Apple to overplay its hand and reject a new deal with Avago, thereby either prevent a merger from coming together or from winning regulatory approval.
And, in turn, a new Avago-Apple licensing arrangement, writes Ackerman, "would lead the FTC to withdraw its antitrust lawsuit against Qualcomm."
One wild card, as Ackerman puts it, is the nomination of President Donald Trump of Joseph Simons to run the FTC. Simons might actually remove the lawsuit against Qualcomm without any deal.
"We don't know his views on that lawsuit, and he may well say nothing about it," writes Ackerman. But if he were to do so, Ackerman speculates, it could "reinforce Qualcomm's view of the sustainability of its licensing model and encourage it to remain independent," or at least ask for a higher price from Broadcom.
Qualcomm shares today remain below Broadcom's $70 cash-and-stock offer, at $65.92, up 34 cents, or half a percent. Broadcom shares are up $5.60, or 2%, at $271.20.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
