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Strategies & Market Trends : Arbitrage Plays
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To: John Liu who wrote (231)5/13/2000 3:35:00 AM
From: macavity   of 376
 
There is no mathematical arbitrage at the momement.
Before the PALM IPO i.t.o capitalisations
CAP(COMS) = CAP(PALM) + CAP(X)
The value of X (the rump) was unknown.
As COMS own a percentage say ,y, of PALM (this is not 100%)
CAP(COMS) = y.CAP(PALM) + CAP(X). At IPO CAP(X) was -32 Billion implying that the management at COMS were incredibly incompetent .

There is no risk-free play here , as there is no market value of X, however a value of zero may be considered fair (but is not foolproof). I haven't looked recently but X was trading negative a few weeks back. There was a 15% price outperformance sometime this week between COMS over PALM, when the incredibly incompetent management there announced a share buyback. I guess it is now above 0, but what value it should be is one you have to live with.

I cannot say that COMS is cheap and PALM is expensive I have seen many plays where a negative rump just got more negative and the arbitrageurs blew up.
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