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Broadcom to stay on deal path after Qualcomm halt: analysts


By and Rai

(Reuters) - Chief Executive is unlikely to slow his acquisition spree after U.S. blocked the microchip maker's $117 billion bid for on national security grounds, analysts said on Tuesday.

Trump signed an order late on Monday to halt what would have been the biggest-ever on concerns that a takeover of Qualcomm by the Singapore-based company would erode the United States' lead in and give the upper hand.

The deal would have created the world's No. 3 company with a leading market share in smartphones, and

Analysts said Broadcom can still build heft through smaller deals. And it could have an easier time buying U.S. targets if it goes through with plans to redomicilie in the

Tan has already turned Avago, a small chipmaker with a market value of $3.5 billion in 2009, into a more than $100 billion company.

"He looks for value. He's of the view that there is a lot of value to be extracted from this industry," said "He buys franchises, things that he believes have competitive modes, long visibility on revenues, opportunities for operational improvements."

Tan bought California-based companies Broadcom for $37 billion in a leveraged deal in 2015 and in a $5.5 billion deal two years later.

Most analysts assume Broadcom will now walk away from Qualcomm, with some flagging San Jose-based and Israel's Mellanox Technologies Ltd, both diversified makers of communications chips, as likely next targets.

Broadcom could not be immediately reached for comment.

Shares of Broadcom were last up 1.4 percent in midday trading. Qualcomm shares fell 4.3 percent.

Two analysts said Xilinx and Mellanox would be a good fit for Broadcom, though not as transformational as Qualcomm.

San Diego-based Qualcomm evolved from a to become the over the past two decades, with its chips used in half of all

It fended off antitrust concerns around the globe over its intellectual property strategies, taking the biggest share of in the and 4G eras and getting a head start on next decade's 5G era, which promises to embed in cars, factories, homes and cities.

Qualcomm's dominance of that connect phones to networks would have represented the crown jewel in Broadcom's portfolio of that supply wi-fi, graphics, video and networking features alongside

Xilinx makes chips for and Mellanox's products connect servers and

Broadcom has ample firepower for smaller deals, with about $11 billion in cash and the potential to generate nearly $9 billion in annual free cash flow, analysts estimate. Xilinx has a market value of $20 billion and Mellanox is just under $4 billion.

Mellanox was not immediately available for comment. Xilinx declined to comment.

The in the (CFIUS), which raised concerns about the Qualcomm deal with Trump, listed the highly leveraged nature of Broadcom's bid for its larger rival as a major concern coupled with the risk of the U.S. losing leadership.

Before Trump's order, Broadcom had planned to relocate its legal headquarters to the United States, avoiding the need for a CFIUS review.

"If Broadcom completes its redomiciling in the U.S. in a way that extinguishes any non-U.S. ownership or control, then I think they can open the door to many, if not all, acquisitions ... they would effectively no longer be subject to a CFIUS-initiated review or investigation," said Guillermo Christensen, a who works on CFIUS issues at in

"But that really hinges on completely severing the foreign ownership connection, and they would probably have to endure a pretty deep dive on the first deal."

(Reporting by and Rai in Bengaluru, Chris Sanders in Washington; Editing by and Meredith Mazzilli)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Tue, March 13 2018. 22:31 IST