so your qualcomm share price didn’t drop by the relative value of leap wireless on the ex date of the spin-off?
generally speaking, corporate actions are fundamentally equity-neutral events. the market obviously decides the fair value of the two (in this case) either after the announcement, or after mkt open on ex-date.
but in your scenario if leap wireless didn’t start trading until after the spin-off, the expectation is that qualcomm shares drop by roughly the amount of the value of the leap shares. of course, like i said, once trading starts, the arbitrage is absorbed/unwound.
i’m not sure how long ago that was or if you remember…but i’d be interested to hear. your qualcomm stories have been a good lesson.
As I recall from a quarter century ago, Qualcomm was valued for the profitable side of its business (chips, network infrastructure, handsets and royalties) and essentially zero value was assigned to the fledging wireless carrier that was launched by QCOM to stimulate competition. Qualcomm never intended to be a wireless carrier, I think they launched Leap Wireless, much like Tesla is launching auto insurance, to help CDMA break into the market at a time that most wireless carriers had huge investments in a dead-end technology, TDMA, and the value of their capital investments was threatened by the spread-spectrum technology that is now the basis of digital standards in various flavors worldwide.
In 1998, the competitor FUD ran thick and heavy in the media and was also propagated by brokerages that had helped TDMA companies capitalize and, as a result, even today many people don't understand that wireless carriers worldwide use a spread spectrum technology that is the result of CDMA winning the wireless war. Because even as it was being re-branded (in a slightly changed form) as "GSM" or "Wideband GSM", and people were told this was not Qualcomm's technology even though it was CDMA technology at its heart. Qualcomm let them do this as long as they paid the going royalty rate and did not legally dispute that it was essentially Qualcomm's technology with different parameters to ensure it was not compatible.
Leap Wireless probably did cause the stock to drop about $1/share on the day of the spin-off. It was too long ago to remember the exact amount but it was no more than one quarter the value Leap started trading at and QCOM had probably run up a bit in anticipation of getting the Leap shares. Investors got one share of Leap for every four shares of QCOM they held. QCOM was my biggest holding at the time so I got a lot of Leap shares which I sold off after they ran up. Leap eventually ended up failing or being bought out for pennies due to huge barriers to entry and the difficulty of competing with much larger carriers in the wireless market. There is a thing called "network effect" which is that your customers are buying into coverage and they want it to work everywhere. A small carrier can only offer regional coverage without network sharing agreements, it costs billions to cover a continent. But Leap didn't go under until long after the new shares had their speculative run up, I don't recall exactly, three to six times the original valuation.
The principle at play here that is relevant to a possible Ford spin-off is that Farley is essentially saying that people are not valuing Ford highly enough because they are not including enough value for the potential of their EV business. What he doesn't seem to consider is the EV business is not
in addition to their legacy business, it's
instead of ICE sales. That's different than in a traditional spin-off where the spun-off business doesn't compete with the existing business as was the case with Leap Wireless. Leap Wireless became a customer of Qualcomm's infrastructure and chip businesses, not a competitor.
I also don't agree with the premise that Ford's EV business is not being valued enough, given the price F stock is trading at. I believe Ford stock is trading much higher, perhaps triple the price it would be trading at if they didn't have the potential to succeed in EV's. I suppose if one was of the belief that Ford EV's would so hugely successful that Ford EV's would even apply huge competitive pressure to Tesla sales, then that person could argue that the value of Ford's EV business is not being fully valued within F shares. But I don't think there are too many members of this forum that believe Ford will be able to compete on value with Tesla due to Tesla's superior corporate efficiency and continuing innovations in manufacturing that are already demonstrating a huge lead in manufacturing efficiency.
So, I think Farley is just trying to get people to value F stock even higher by dangling the carrot of a possible EV spin-off in front of investors noses so corporate insiders can divest themselves at more lucrative prices before Ford stock is in the gutter. It could also delay the amount of time Ford shares take to find the gutter with this potential carrot hanging there. So, don't expect this potential spin-off to be resolved shortly - I think it will be the perpetual "carrot" designed to support Ford share price until the time it is realized that Ford's EV business is even less profitable than their ICE business (due in part to competitive pressures in the EV market like TSLA's efficiency). If it was actually feasible to spin-off Ford's EV business, that would only hasten the transparency of the poor economics of Ford's EV business. Currently the economic details are hiding behind the opaque curtain of ICE profits.
Don't hold your breath waiting for the SEC to step-in to protect F shareholders by reminding Farley that a spin-off of their EV business is structurally very much more problematic than he is disclosing due to many factors including dealership franchise agreements, pension obligations and the fact that a spun-off EV business would be a direct competitor to Ford's ICE business.