Rick & Thread:
I realize it's early days yet, but has anyone done any thinking about the fact that between the record date (July 11, 2000, when the distribution ratio is set) and the distribution date (July 27, 2000, when you get your PALM shares), there will be 2 classes of COMS and PALM stock? This allows for all kinds of trading:
(1) If you own say 1000 shares of COMS regular as of the record date, and you do nothing and just hold through D-Day, you will wind up with 1000 COMS and 1500 PALM (assuming the 1.5 ratio).
(2) Between 7/11 and 7/27, if you sell your 1000 COMS on the "regular way" market, you also sell your right to the 1500 PALM.
(3) But between 7/11 and 7/27, you can also sell your 1000 COMS on the "ex-distribution market" (i.e. you can sell 1000 COMSv underlying), and you will still receive your 1500 PALM on D-Day. You will however have traded away your 1000 COMS underlying, and you'll wind up with just the 1500 PALM.
(4) Also between 7/11 and 7/27, you can sell your right to receive 1500 PALM on D-Day by selling 1500 PALMv shares on the "ex-distribution market". The 1500 PALM shares you trade away will be gone, and on D-Day you'll be left holding just the 1000 COMS underlying and no PALM. Right now I can't imagine anyone wanting to do this, but circumstances can change.
The PR FAQ say that 3Com/PALM expect the PALM and PALMv shares to trade at the same price, but that the COMSv will be lower priced than the COMS, because the COMSv will not contain any right to the PALM distribution.
Thus anyone who wants out of COMS and is only in it for PALM doesn't have to wait until 7/27 to sell the COMS portion, because they can get out of the COMS at any time between 7/11 and 7/27 and still receive PALM.. This odd sounding arrangement (to me at least) means that between 7/11 and 7/27 we'll have a good idea of what the market feels COMS sans PALM is worth, because that's the price the COMSv will be trading at. It will also spread out any COMS sell-off over several weeks, instead of there being wholesale dumping of COMS on 7/27. Maybe this is one way that 3Com will use some of the $1 billion, to soak up any dumping of COMS underlying between the two dates. Seems like this could have a stabilizing effect on the market for COMS sans PALM (the COMSv) for a couple of weeks prior to the actual D-Date.
I started to think about the arbitrage possibilities here (long/short on four stocks, calls/puts on at least two of them) with the four separate stocks trading on the "regular" and "ex-distribution" markets, but I couldn't get my head around the possibilities. Maybe a good night's sleep will clear the gray matter a bit.
Any ideas anyone?
David T. |
