The management at Qualcomm (NASDAQ: QCOM) is doing a horrendous job maximizing shareholder value. First, it fought hard against Broadcom (NASDAQ: AVGO) and its $80+ bid for the company. Then it earned a lower bid from Broadcom when it raised its buyout for NXP Semiconductor (NASDAQ: NXPI). It lost AVGO’s bid entirely when the U.S. government stepped in to stop it. Now, China is delaying its decision on approving the NXPI buyout. With my target price on QCOM stock at $50 a share, could the stock fall even lower than that?
China wants Qualcomm to give more concessions in the NXP deal. The country is not satisfied on how Qualcomm will reduce the negative impact on the market after the buyout. This uncertainty is amplified by China’s need for large amounts of time to investigate, collect evidence and to analyze the deal.
The political and regulatory uncertainty has a high likelihood of pulling QCOM stock down to the $45 - $50 range within weeks or up to a few months. At such a time, both QCOM and NXPI stock have compelling value. A breakdown in the buyout is asymmetrically beneficial to NXP Semi. When the merger of Applied Materials (NASDAQ: AMAT) and Tokyo Electron was abandoned on Apr 27, 2015, AMAT stock tanked. The stock more than soared when it cut costs, increased profits and proved itself stronger on its own than as a merged company. The same is true for NXP.
