Investing

$100 Billion Worth of Merger Rumors to Ponder Over the Weekend

Jon C. Ogg

Published: July 31, 2020 4:55 pm

Last Updated: July 31, 2020 5:00 pm

The stock market doesn’t seem to care what day of the week that rumors turn into stock moves, but Fridays are often a very ripe time for good old-fashioned buyout rumors. The market lingo has for years used the terms “Rumor Fridays” and “Merger Mondays” and that should sum it all up.

24/7 Wall St. has tracked three potentially very large mergers which were all worth coverage and which all would need some consideration. It is impossible to know what the total size of each rumored deal might be, let alone just how “real” the deals might even be, but the reported amounts are approaching $100 billion based on preliminary and other ongoing reports. There are no assurances at all that any of the rumors will come true at all, and the ultimate size of any deal which might get done could be far lower or far higher than what has been reported.

The merger that has been the source of ongoing rumors is the potentiality that NVIDIA Corporation (NASDAQ: NVDA) is wanting to acquire ARM from SoftBank. Whether or not this deal is even feasible need to at least be considered. After all, regulators (including China) are entering more of a cautious period about willingness to approve large multi-national mergers.

If NVIDIA truly is interested, any technocrat will have to wonder if Qualcomm Inc. (NASDAQ: QCOM) would be interested as well. As a reminder, Qualcomm tried to acquire NXP Semiconductor NV (NASDAQ: NXPI) for $44 billion, but it walked away from the deal in mid-2018 after failing to win approvals from China. Another possibility would be whether or not Broadcom Inc. (NASDAQ: AVGO) would want to get in on the deal since it has been an aggressive acquirer in recent years.

SoftBank has reportedly been in need of cash and selling ARM after it acquired it for $32 billion in 2016 remains to be seen whether or not it could fetch a premium or not. This rumor has been circulating for a couple weeks or more, so the it’s hard to tell if any rekindled merger reports have anything new or if they are just building upon the same reports they previously had. If Qualcomm or another buyer does not emerge, there has been some reporting that ARM might be worth as much as $40 billion in a sale/divestment via an initial public offering.

Microsoft Corporation (NASDAQ: MSFT) has made big deals before, but is it really in line to acquire the Chinese video app TikTok after its earnings reaction took a breather? The U.S. has weighed in on a ban on the app due to security concerns dealing with ByteDance, but Wedbush Securities noted in an afternoon read-thru that TikTok has been valued in the private markets at roughly $50 billion. Multiple outlets have reported on the would-be deal, all citing “people familiar with the situation.” President Trump has already been reported to sign an order that ByteDance divest TikTok or face an app ban in the United States.

Daniel Ives of Wedbush noted that this would be a big bet on the consumer social media space and that the company has more or less stayed away from that over the last decade. And Microsoft did undertake $26 billion merger back in 2016 to acquire LinkedIn. Ives noted that Microsoft’s consumer strategy remains in flux and an aggressive acquisition, or even a strategic investment, have Microsoft competing with Facebook and others in a new growth segment for its consumer business over the next decade. His take — the Microsoft TikTok deal would make strategic sense, but investors would take some time to get comfortable with this consumer path.

A late day volume spike and market surge was seen in shares of Kansas City Southern (NYSE: KSU). The rail giant was covered by the Wall Street Journal reporting that private equity firms Blackstone and others) are considering making a takeover offer to acquire the North American railroad operator. The size of the deal was listed as being potentially more than $21 billion. Kansas City Southern’s shares were up almost 10% at $171.85 at the closing bell and its market cap was roughly $16 billion after the pop.

Analysts had nudged Kansas City Southern’s price targets higher after earnings in mid-July, and that $21 billion likely includes the assumption of $3.8 billion in long-term debt. Kansas City Southern may be different than some of the other railroads in that it would represent a big bet on increasing trade between the U.S. and Mexico at a time when tensions with China are higher.

Shares of NVIDIA closed up 3-cents at $424.59 on Friday, while Qualcomm closed down almost 1.5% at $105.61.

Microsoft shares closed up 0.5% at $205.01 on Friday, but its shares had been lower and even under $200 before a late-day rally lifted the stock.

Kansas City Southern shares closed up about 9.7% at $171.85, but its stock hit a high of $184.16 earlier in the day after its shares had been halted and reopened.