CSR (LON: CSR) to be sold for $2.5 billion to Qualcomm (NASDAQ: QCOM)

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By Ross Schwartz on October 15, 2014 Us News

In what has become a trend in the connected technology industry, CSR Plc (LON: CSR) is being sold to Qualcomm Inc. (NASDAQ: QCOM) at a staggering bid of 1.56 billion pounds, which is roughly 2.5 billion in U.S. dollars.

This takeover comes only a couple of months after Microchip Technology Inc. (NASDAQ: MCHP) was denied acquisition due to unknown reasons.

According to CSR (LON: CSR), per price share has been set at 900 pence, up by 37% compared to yesterday’s closing figure. The deal, which has been pushed forward by directors at CSR (LON: CSR), has valued the chip-making company at approx. 19 times that of projected earnings, much better than the market average in the past 12 months for similar takeovers at 16.7 times.

Qualcomm (NASDAQ: QCOM) is one of the market leaders in the semiconductor industry, trading on the NASDAQ stock exchange at $72.24 per share as of 15th October 2014. The company deals in wireless technology, and provides hardware to major brands including Samsung for use in smartphones and laptops.

CSR (LON: CSR), on the other hand, is one of the pioneer companies to have developed the Bluetooth technology, which allows users to connect devices wirelessly, whether it be car stereo systems with smartphones, or smartphones with air conditioners. Initially, CSR (LON: CSR) had business only in the smartphone industry, developing technology for the Nokia Oyj handsets. It was only about 5 years ago that CSR (LON: CSR), due to plummeting profits, shifted to developing wireless technology exclusively.

According to CSR Plc (LON: CSR) CEO Joep van Beurden, this acquisition signifies the “strategic complement between Qualcomm (NASDAQ: QCOM) and CSR”. Both the companies are market leaders in developing silicon for smartphones, and to have CSR (LON: CSR) join in would be highly lucrative for Qualcomm (NASDAQ: QCOM).

However, as both the companies deal in wireless technology, the acquisition of CSR (LON: CSR) by Qualcomm (NASDAQ: QCOM) comes as a shock to many market analysts, including Eoin Lambe, Liberum Capital analyst in London, who says “there’s a lot of technology overlap between the two companies.”

But this has not stopped Qualcomm (NASDAQ: QCOM). In July of this year, Qualcomm (NASDAQ: QCOM) purchased Wilocity Ltd., a company which specializes in the development of Wi-Fi products, including technology which allows networks to connect with each other over the internet.

Lee Simpson, who is analyst working for Jefferies, senses a shift in the strategy of Qualcomm (NASDAQ: QCOM). With Qualcomm’s acquisition of Wilocity Inc. and now CSR Plc (LON: CSR), Simpson says Qualcomm (NASDAQ: QCOM) has shifted from making its own technology, to buying technological capabilities of other companies. According to Simpson, these two recent purchases by Qualcomm (NASDAQ: QCOM) suggest a shift in attention, from developing a diverse range of technology to making chips designed to connect technology.

The acquisition of CSR Plc (LON: CSR) by Qualcomm Inc. (NASDAQ: QCOM) is expected to be completed by the second half of Summer 2015, which is also the year van Beuden will retire. According to Qualcomm (NASDAQ: QCOM), the earnings per share will not be added until a year after the acquisition, in fiscal year 2016.