Broadcom Corp. (NASDAQ: BRCM) has agreed to buy NetLogic Microsystems, Inc. (NASDAQ: NETL) for $50 per share, totaling about $3.7 billion, net of cash assumed. Analysts at Jefferies believe the deal could be potential negative for Cavium Inc. (NASDAQ: CAVM).
Broadcom expects the acquisition of NetLogic to add around $0.10 per share to its adjusted earnings in 2012. The transaction, which is approved by both the companies’ boards, is expected to close in the first half of 2012.
“Given Broadcom's wider customer base, and potential to offer integrated capabilities using products and technologies acquired from Netlogic, we believe the competitive landscape in multi-core processors for Cavium could be negatively impacted due to the acquisition,” said Sundeep Bajikar, an analyst at Jefferies.
Bajikar sees the acquisition as being neutral to EZchip Semiconductor Ltd. (NASDAQ: EZCH) and PMC-Sierra Inc. (NASDAQ: PMCS).
He believes Broadcom’s decision to acquire NetLogic was driven by three factors: continued growth potential in Knowledge-based processor, share gain potential in multi-core processor, and share gain potential in Wireless base station/radio head with Optichron DFE.
Meanwhile, the brokerage downgraded its rating on shares of NetLogic to “hold” from “buy” while increasing its price target to $50 from $49 following the announcement of acquisition by Broadcom.
Bajikar continues to have a positive view of NetLogic’s business fundamentals. He sees quicker approval of the acquisition process and incremental market shares from new products attracting higher multiples from investors as upside risks for NetLogic, while seeing acquisition by Broadcom is delayed as downside risk.
NetLogic stock closed Monday’s regular trading up 50.8 percent at $48.12 on the NASDAQ Stock Market, while Broadcom stock closed down 1.14 percent at $33.06.