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Activist Barry Rosenstein Has QUALCOMM, Inc. (QCOM) Considering Breakup

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Barry Rosenstein of JANA Partners may be winning in his quest to unlock value at QUALCOMM, Inc. (NASDAQ:QCOM), as the chip giant is reportedly on the verge of conducting a strategic review of its business which may push the company to break up into two separate firms. According to The Wall Street Journal citing unnamed “people familiar with the matter,” QUALCOMM is “expected to conduct a sweeping strategic review that will look at the possibility of a breakup, among other options”. The plans for a breakup may be announced as soon as the announcement of the fiscal third quarter results of the firm on Wednesday, the publication notes. Nonetheless, the very same sources caution that the plans of QUALCOMM, Inc. (NASDAQ:QCOM) are not yet finalized so there may not be any breakup announcements on Wednesday. Rumors of a possible break-up of the chip-making business and technology licensing arms of QUALCOMM have been heard ever since JANA Partners disclosed a nearly $2 billion stake in the technology firm in April.

QUALCOMM Inc. (QCOM), NASDAQ:QCOM, Yahoo Finance, Hedge Fund:69, JANA Partners, Barry Rosenstein,

We follow hedge funds like JANA Partners because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 139%, outperforming the S&P 500 ETF by 81 percentage points (see more details here).

JANA sent a letter to its investors in April saying that it had proposed changes to QUALCOMM including reducing corporate costs, strategic mergers and acquisitions, and the modification of corporate governance, all of which could help the firm improve on its earnings misses and underperformance compared to its peers. The $17-billion JANA Partners hedge fund estimates that excluding $30 billion in cash, QUALCOMM, Inc. (NASDAQ:QCOM) trades at just 9x earnings. At this multiple, the hedge fund said that the chip-making business of the firm, called Qualcomm CDMA Technologies (QCT) is essentially valued at nothing. QUALCOMM was informed it could realize value for its QCT arm by either spinning it and Qualcomm Technology Licensing (QTL), its technology licensing arm, into two separate businesses, or by combining them.

Barry Rosenstein
Barry Rosenstein
JANA Partners

Other changes proposed by JANA to QUALCOMM include the acceleration of share buybacks. The technology firm has a $15 billion share buyback program announced in March, including $10 billion earmarked for this year. JANA believes this is a good first step, particularly in reviving the company’s lagging stock, which has fallen by 13.87% year-to-date. Over the past 12 months, the stock is down by 18.9%. In April, QUALCOMM reported a 46% drop in profits for its second quarter.

The success JANA Partners will have with QUALCOMM, Inc. (NASDAQ:QCOM) if it does decide to either break-up or consolidate its different business units comes after JANA Partners’ successful activist run with ConAgra Foods Inc (NYSE:CAG). ConAgra has confirmed that it intends to divest its Ralcorp acquisition, exiting its flop of an entry into the private label food business. JANA Partners pushed hard for this exit as well as an expansion of ConAgra’s board, which it got in the form of two new board seats.

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