Image Source: Gareth Halfacree
We fully applaud Intel’s (INTC) management for walking away from the deal with Altera (ALTR).
Though we liked the transaction from a strategic standpoint, our view centered on the assumption that Intel could “pay up to ~$40 per share for the company…and still create value for existing shareholders.” With Altera’s shares trading north of $43 at present, Intel would have had to pay a sharp premium to market levels, perhaps in the $60s, to entice management.
Bloomberg reported that Intel had offered as much as $54 per share, and in this light, we’re glad the company walked away. Even though we think the bid was too high, our opinion of the executive suite has been ratcheted up on account of its ability to say “no” to a bad deal (from an economic standpoint).
Shortly after CNBC reported that the Intel-Altera tie-up was off the table (for now), we’re now hearing that Intel could be looking to acquire Broadcom (BRCM). Long-time members of Valuentum know that we’ve liked Broadcom’s valuation for some time, and we point to the company as an example of one of our best ideas not included in the newsletter portfolios.
Broadcom is currently trading below our estimate of its intrinsic value, and while we don’t like the speculated deal as much as the Altera one at the right price, this transaction has more room to be value-creating on the basis of Broadcom’s standalone value. All of this is just speculation for now, but we do think Intel is looking to get a deal done.
It’s reassuring to know that Intel knows price is the main consideration. Even the best tie up from a strategic standpoint done at the wrong price would not be good for shareholders. We can’t wait to hear what these firms have to say when they report results.