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Technology Stocks : SDL, Inc. [Nasdaq: SDLI]
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To: Keith Fauci who wrote (2466)7/31/2000 1:57:16 PM
From: Gerald Walls  Read Replies (1) of 3951
 
Since SDLI is trading at $348 and JDSU is trading at $118 right now. Wouldn't it be worth selling JDSU and buying SDLI since the conversion ratio is 3.8 to 1?

118 * 3.8 = 448

What is wrong with my logic?


Absolutely nothing, assuming that you believe that the deal goes through with little modification and assuming that you don't have large capital gains you want to avoid taking.

Arbitragers do this all the time. The short the acquirer and buy the acquired in order to lock in the deal's premium. The spread generally widens when there's uncertainty that the deal will go through or interest rates increase. The spread generally narrows when the previous are reversed and as the time until the deal is consummated shortens.
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