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Peculiarities of Synergy Valuation in Cross-border M&A Transactions in the IT Industry: the Case of Broadcom and QUALCOMM

Student: Aleksandr Borisenko

Supervisor: Ekaterina A. Makarova

Faculty: Faculty of World Economy and International Affairs

Educational Programme: International Business (Master)

Year of Graduation: 2019

This paper investigates the synergy effects of the potential cross-border merger of two technology chip-manufacturing companies Broadcom Inc. (based in Singapore) and Qualcomm Incorporated (based in Delaware, US). The deal, estimated at $120 billion, if were to go through, would have been the largest merger in the history of the technology companies. Despite the extended negotiations between the two companies, the deal did not materialize and was vetoed by the Presidential Administration of the United States. The Committee on Foreign Investment in the United States (CFIUS), an interagency panel led by the Treasury Department, in its review of the merger has prohibited the deal on the ground of the national security. According the official statements of the White House administration, the chip-manufacturer Qualcomm has significant implications for the security of the American consumers and therefore, risks of a foreign company controlling this sensitive sector would have had significant implications for the national security. We, in this paper, investigate what would have been the effects of the merger on the financial and operating results of the merged companies. Namely, we believe that the companies could have had significant advantage due to economies of scale, stronger negotiating position with customers and suppliers, improved market positioning and production operations. When combined, all these synergy effects could generate significant returns to the investors of Broadcom Inc, as the cumulative equity position would have been substantially higher than if the two entities were valued on a stand-alone basis.

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