Cooters, I think you are making a questionable assumption. First, to assume that the Spinco IPO will be priced on the low side because of current weakness in demand for certain chips is unwarranted. Be advised that many successful IPO's even in today's market conditions are for companies that have no earnings, no products, no management track record, and little if any intellectual property rights.
Second, the underwriter(s) want to make sure the IPO is done at a time when acceptance in the marketplace will be very strong. That is, the IPO date is selected to give an advantage to the company and the underwriter, not necessarily to prospective shareholders. Part of the underwriter's profit comes from the difference between the issue price (what the parent company receives) and the market price during the first few weeks of trading, when the underwriter is unloading shares.
Given the management quality of QUALCOMM and its divisions, the ready market for Spinco products, and intellectual property that is critical for any 3G wireless applications, the IPO is likely to be a success, and what's more, the price of the shares at the time of issue is likely to be substantial. This doesn't mean the price might not drop six months after the IPO (a typical phenomenon), especially if the overall tech stock market is weak at that time. Investors should NOT assume that the price of Spinco shares, or whatever the company will be called, will be a bargain at time of issue. What is more likely is that the money received by QCOM will be advantageous not only in the pricing of the asset (including the patents that are now only valued intrinsically) but in creating for QCOM a book value that reflects the true (intrinsic) value of its management quality and intellectual property.
Art Bechhoefer |
