US techs bid up on European gains
H-P, Compaq edge forward ahead of vote; MU up
By Emily Church, CBS.MarketWatch.com
Last Update: 6:14 AM ET March 18, 2002
LONDON (CBS.MW) - U.S. big caps were bid higher in speculative trading Monday ahead of the New York open as gains in Europe's tech and telecom sectors lent support to the bulls.
Hewlett-Packard (HWP: news, chart, profile) and Compaq Computer (CPQ: news, chart, profile) were each up some 20 cents in euro trading of U.S. shares as the market awaits the "too close to call" shareholder vote on the $20.5 billion deal.
Compaq was trading at $10.52 in Germany, a $1.73 discount to parity with H-P's bid. The spread likely reflects the market's 50-50 odds on the deal going through, making arbitrage a little dicier than usual, London dealers said.
"You can't short H-P and you can't buy Compaq," one dealer said, describing the expectation that H-P shares might rise and Compaq may decline once the vote is done.
The downside risk to Compaq shares is that it could sell for 30-40 percent of revenue, equal to $5-6/a share, UBS Warburg analyst Don Young told clients overnight.
"A broken deal would most likely cause a serious loss of confidence by customers, the potential for accelerated defections from the proprietary server base, and we believe the need for major restructuring charges to address problems in the CPQ PC business," he said.
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