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March 14, 2018

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Broadcom not likely to stop takeover spree

Source: Agencies | 00:01 UTC+8 March 14, 2018 | Print Edition

BROADCOM Ltd, led by dynamic Chief Executive Hock Tan, is unlikely to put the brakes on an acquisition spree after its US$117 billion bid for Qualcomm Inc was blocked by US President Donald Trump.

That was the immediate reaction from Wall Street’s tech sector analysts to Trump’s surprise intervention on Monday afternoon to block what would have been the biggest ever tech merger.

Most assumed Broadcom would walk away from the Qualcomm deal and some identified San Jose-based Xilinx Inc and Israel’s Mellanox Technologies Ltd as its likely next targets.

“We’ll see if there is anything else Broadcom can do to fight but given a likely long timeframe for a battle, and the fact that (US government panel) CFIUS seems so arrayed against them, we suspect they may be near the end of their rope,” Bernstein analyst Stacy Rasgon said.

While a Qualcomm deal would have made Broadcom the dominant supplier of chips used in smartphones and brought the company to the forefront of developing technology for the next generation of 5G mobile network technology, it can still make a string of smaller deals to build heft.

“We believe Broadcom’s options start with a continuation of broadly-scoped communications-focused M&A,” B. Riley analyst Craig Ellis said. “Broadcom covets high-margin, technology-rich moderate growth businesses with complimentary end market and customer exposure.”

Xilinx and Mellanox would be a good fit for Broadcom, though not as a transformational level like Qualcomm. Xilinx makes chips used for wireless communication and Mellanox’s products connect servers and storage systems, complementing Broadcom’s broad portfolio.

Xilinx has a market capitalization of US$20 billion and Mellanox just under US$4 billion.

Neither company was immediately available for comment.

Broadcom CEO Tan is a serial acquirer who has turned Avago, the small chipmaker he was running with a market value of just US$3.5 billion in 2009, into a giant with a market capitalization of over US$100 billion in less than a decade.

Tan bought Broadcom for US$37 billion in a leveraged deal in 2015 and followed it up with a US$5.5 billion deal to acquire Brocade Communications two years later.

The Committee on Foreign Investment in US, which raised concerns about the Qualcomm deal, listed the highly-leveraged nature of Broadcom’s bid for its larger rival as a major concern and a risk to Qualcomm’s leadership on mobile technology.

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