t is hard to express all that much sympathy for CEOs who routinely take home millions of dollars for their work, but that doesn't mean they don't face some significant challenges. In particular, management at a company like Qualcomm (Nasdaq:QCOM) is under the seemingly constant pressure to reassure Wall Street that not only is the existing business producing sustainable growth, but that there are avenues to even further growth.
The Qualcomm/Atheros Deal
Atheros shares spiked on Tuesday as rumors swirled that Qualcomm was about to offer $45 a share for the company. As it turns out, those rumors were pretty much spot on - Qualcomm announced Wednesday morning that it was acquiring Atheros for $45 per share in cash, or a total value of $3.1 billion (before netting out Atheros' cash). At a price of $45, Qualcomm is paying a little more than 18 times trailing EBITDA and a better-than-20% premium to the pre-rumor price of the shares. (For more, see A Clear Look At EBITDA.)
What Qualcomm Is Getting
In buying Atheros, Qualcomm is getting a company with a strong WLAN/Wi-Fi business. Atheros' chips are used in a variety of computers, networking equipment, and mobile devices, and the company has recently started trying to expand into areas like ethernet and GPS. Atheros has a rather broad customer base, but not necessarily a very broad business portfolio. To that end, that may have been part of Atheros' motivation in selling out - avoiding the struggles and setbacks that so often occur when specialized chip companies move into new and relatively unfamiliar business lines. (For related reading, check out 2010: The Year In Chips.)
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