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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Uncle Frank who wrote (28716)	7/25/2000 10:03:01 AM
From: Mike Buckley	Read Replies (4) of 54805

Valuation of Spinco The one issue I don't understand: what portion of Spinco will be sold at the IPO? Qualcomm shareholders will get "remaining" shares, implying that not all of the shares will be sold as part of the IPO. That muddies the issue about the $100 million valuation, so I hope someone can explain this to us. Bear with my train of thought. Total operating margins for Qualcomm over the last nine months was about 39%. That's not much higher than the 37% Jacobs said Spinso earned over the same time frame. Jacobs said the pro forma revenue for the same period was $1.2 billion and $.96 billion for Qualcomm and Spinco, respectively. That's Q with 55$ of the revenue and Spinco with 45% and operating margins not significantly different. Using QCT as a barometer for Spinco's growth as management suggested, the latest 9 months' revenue is 56% higher than the previous year's period. But the sequential growth in both years is highly sporadic. And QCT's growth in the most recent quarter compared to the year-earlier quarter is only 6%. That makes the picture even muddier to me. The real issue for me comes back to the market value of Spinco. If all of the shares are being sold, it's gotta be worth one helluva lot more than $100 million. It's 45% of the current revenue at operating margins only slightly below the total. With a current market cap of around $45 billion, $100 million, $500 million, or $2 billion doesn't cut it IF all the shares are being sold. I gather from this that a relatively small part of Spinco is being sold. Help! --Mike Buckley

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