Citi upgraded ratings of Skyworks Solutions (NASDAQ:SWKS) and Qorvo (NASDAQ:QRVO) to Neutral from Sell after Skyworks announced it was acquiring Qorvo in a cash and stock deal.
The firm set a new target price of $91 for Skyworks and $105 for Qorvo.
Under the agreement, Qorvo shareholders will receive $32.50 in cash and 0.960 of a Skyworks common share for each Qorvo share held at the close of the transaction. The deal values the combined enterprise at about $22B.
Analysts led by Atif Malik said the deal is aimed at bringing both scale and diversification with expanded Serviceable Addressable Market, or SAM, and increasing customer stickiness in handset market and broader Total Addressable Market, or TAM, in other markets, and about $500M expected cost synergies.
“Regulatory approvals are a major concern, but we assume high probability of approval as China is self-sufficient in mobile, and RF [radio frequency] market is highly competitive with Broadcom (AVGO) and Murata (OTCPK:MRAAY) (OTCPK:MRAAF) as main competitors. In addition, major customer Apple (AAPL) supports the deal,” the analysts added.
The analysts noted that they previously said that industry consolidation is needed to offset Apple’s concentration risk and competitive forces in the RF industry. Thus, they have upgraded the ratings of Skyworks and Qorvo.