Cowen Affirms Broadcom (BRCM) at 'Market Perform' Following Joint Proxy Filing with Avago (AVGO)

Cowen is out with commentary on Broadcom (Nasdaq: BRCM) and Avago (Nasdaq: AVGO) following the filing of a joint proxy statement on September 18th.

Analyst Tim Arcuri noted the following key points from the filing:

• There's a mutual $1 billion termination fee and no solicitation agreement with a fiduciary exemption
• Suitors - Overall five companies were interested in acquiring some or all of BRCM over the last 2 years. Company A (we think possibly INTC) engaged BRCM in discussions starting in October of 2013 and wanted to a) partner with BRCM, b) acquire the Mobile and Wireless Business, or c) acquire BRCM entirely. Company B (we think it could be Samsung) started its discussions in Dec of 2013 and sought to a) combine it’s wireless with BRCM wireless in JV or b) combine BRCM with its semi business. Company C (possibly QCOM or MediaTeck) started discussions in March 2014 and Company D (Possibly QCOM, or MediaTek) started discussions on an acquisition in March of 2015. Avago started its discussions in October 2014 and was the fourth of the five suitors to initiate discussions. Overall we think that the five suitors were likely INTC, Samsung, QCOM, MediaTek, and AVGO with a lot of activity around the time of Cellular wind down decision in march 2014 with discussions with company A, B and C, which could have been the catalyst for eventual deal.
• Cost synergies and internal estimates - It is notable that AVGO estimated cost synergies of $750MM/yr within 18 months of completion while BRCM's estimate was $1.1B. We believe that most of the synergies will have to come out of BRCM's operating expenses as AVGO is already very lean and as a large fabless semiconductor company with considerable foundry leverage, it's hard to see this deal reducing BRCM's COGS. Also, BRCM management's EPS estimates for 2016 that was provided to JP Morgan were about 7.5% below the Street but management may have been conservative.

For an analyst ratings summary and ratings history on Broadcom click here. For more ratings news on Broadcom click here.ay.

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