Hedge fund pressure to split QUALCOMM, Inc. (NASDAQ:QCOM) is unlikely to be a problem when the phone chip-maker enters into market with a huge bond to support a share buyback. Jana Partners, the activist hedge fund holds 4.4 million shares in the company. It intends to separate Qualcomm’s chip-making unit from its technology license business, among other changes.
However, with strong A1 and A+ ratings, no outstanding debt and with almost $32 billion of cash, Qualcomm is unlikely to give up under pressure. The expectations are that investors would shrug off Jana’s complaints.
Matt Duh who is the Senior Portfolio Manager with Calvert Investments said that Qualcomm is a $113 billion company. It indicates that the company is too big for an activist hedge fund to really influence key management decisions. The hedge fund is seen as the toughest and biggest of all hedge fund activists, and most of the times its involvement results in nothing but troubles for organizations.
The complaints about the company’s recent performance are explicable. QCOM shares have declined around 9% year-to-date. Also, it is facing severe competition from Intel Corporation (NASDAQ:INTC), Samsung and MediaTek.
The activist hedge fund said that they believe management and board recognize the need to sort out the historical underperformance and enhance investor perceptions of Qualcomm. It stated company’s chip business as essentially worthless at current valuations. However, with lack of debt and strong ratings, Qualcomm can generate tens of billions of dollars worth bonds, and still remain ‘A’ rated with enough cash to spare.
Scott Kimbali, a portfolio manager, said that a bondholder is always concerned that a firm may opt for extremely aggressive financial policies to increase shareholder returns. Things change when issuance is done by a company with no outstanding debt and possess ’A’ rated technology.