Current Price – $64.09
Tender Price – $60.0 - $67.5
Upside – 5.3% (if priced at the upper limit)
Expiration Date – August 27th, 2018
After failed NXP acquisition Qualcomm right away announced stock repurchase program of $30bn to be implemented during the upcoming year. This is a staggering 32% of the company, so definitely one of the largest buyback programs within the large cap space. On top of that management promised to implement it in relatively short time period.
QCOM kicked off this program by launching $10bn dutch tender offer (11% of the company) at $60-$67.5. My expectations are for the tender to be priced closer to the upper limit purely because there will still be another $20bn left in the buyback after this tender and investors should be expecting either further tenders or open market purchases. So I do not think all investors will jump to the current tender opportunity and push the price towards the lower limit.
At the same due to large size of the tender there should be plenty of institutional arbitrageurs involved and therefore tender will most likely be priced below the upper limit (as arbitrageurs will tender below this limit to increase probability of shares being accepted).
So as is often the case with these tenders the trade is based more on technical aspects rather than fundamentals of the company. The downside risk should be minimal here even in the case the shares are prorated or not accepted at all.
In the most optimistic scenario, the tender will be under-subscribed which will right away push the shares beyond the upper limit and non-tendering shareholders will profit the most.
The case for GHL - up 70% since buyback announcement and only implemented tiny portion of the buyback - nicely illustrates what happens when company promises to buyback large portion of the outstanding shares.
During tenure of current QCOM CEO Steve Mollenkopf (4+ years) share price has declined by 19% despite material share repurchases and 13% reduced share count. His biggest bet - two year drama of NXP acquisition - has also failed. So he should be quite eager to pursue this buyback aggressively.
There is an odd lot provision with $340 upside if shares end up priced at the upper limit.