Broadcom (AVGO) Redomiciles To United States From Singapore

Broadcom Inc. (NASDAQ:AVGO) recently concluded the redomiciliation procedure of the company from Singapore to the State of Delaware in the United States. The now US company is headquartered in San Jose, CA.

The newly issued common shares of Broadcom Inc are matched one-for-one with the existing ordinary shares of Broadcom Limited, as on Apr 4 post the market close. The new common stock of Broadcom will continue trading under the NASDAQ ticker “AVGO” from Apr 5. Furthermore, the company expects day-to-day functioning and management of its business operations to remain unaffected.

Broadcom's President and CEO, Hock Tan informed that the company will invest $3 billion and $6 billion annually in research & engineering and manufacturing, respectively. Tan further anticipates that the company will pay additional taxes amounting to “several hundred million dollars” to the United States. President Trump’s “America first” policy has gained spirit with this announcement.

Notably, the news of redomiciliation interestingly comes in the wake of Qualcomm’s (NASDAQ:QCOM) annual shareholder meeting which was postponed to Apr 5 by Committee on Foreign Investment in the United States (“CFIUS”). Qualcomm’s shareholders are now expected to take a better voting decision.

Brief History

Trump had blocked the company’s revised acquisition bid of $117 million, or $79 per share, for Qualcomm. The presidential order had put an end to what could have been the biggest ever tech deal, on grounds of national security. The rejection stemmed from Trump’s concern of conceding China the upper hand in mobile cell phone communications.

The order had also disqualified Broadcom's 15 proposed candidates from standing for election as directors of Qualcomm. It restricted Qualcomm from accepting the nomination or votes for any of these 15 candidates.

The U.S. Treasury's CFIUS had outlined key concerns in a letter dated Mar 5, 2018 to both Broadcom and Qualcomm related to their proposed merger deal. The decision of the secretive government panel reflected an aggressive stance by the administration to protect major American corporate names from being acquired by non-U.S. entities.

Can Qualcomm Acquisition be a Reality?

Acquisitions have played a significant role in deciding Broadcom’s growth trajectory. Brocade acquisition is likely to boost its position in the storage area networking (“SAN”) space.

Broadcom’s recent move will aid it to pursue the Qualcomm acquisition aggressively once more. The base-shift will also make the regulatory environment uncomplicated for Broadcom. Going forward, we believe that if the deal goes ahead Broadcom can reap the benefits of cost reduction as well as reduced competition.

Qualcomm’s investment in 5G wireless services as well as NXP purchase, which will offer significant exposure to self-driving cars and automotive market, will empower Broadcom’s growth prospects.

A possible merger of Broadcom and Qualcomm might create the world's third-largest semiconductor company, lagging Intel Corporation (NASDAQ:INTC) and Samsung (KS:005930). However, this would affect competition in the industry.

Zacks Rank & Stocks to Consider

Both Broadcom and Qualcomm carry a Zacks Rank #3 (Hold).

A better-ranked stock in the Electronics and Semiconductor industry is Mellanox Technologies, Ltd. (NASDAQ:MLNX) , currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The projected earnings growth rate (3-5 years) for Mellanox is 15%.

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