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Technology Stocks : Qwest Communications (Q) (formerly QWST)
Q 84.21+1.0%Dec 26 9:30 AM EST
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To: nic who wrote (613)1/17/1998 2:27:00 PM
From: nic  Read Replies (1) of 6846
 
Over 15 minutes ago :-) I said:

you can pick up QWST via PHX right now below its IPO price...

I'm afraid I have to eat my words here - the terms of the merger make this rather more complicated. The deal is: if you buy PHX @ 0.5, it is like buying QWST at almost 60% discount, provided the merger goes through *and* QWST trades in range (52.5 - 67.5) when the deal is closed. At today's QWST level of $65, 60% discount would be $41.

What I meant to say above is that QWST would have to trade as low as $22 for the PHX discount to vanish entirely. This is because PHX assumes only half of the QWST share price risk, and only outside the 52.5 - 67.5 range. This also means that above this range, the value of PHX rises only half as quickly as QWST - so I'm afraid I'll also have to take that "twofold leverage" statement back: the leverage is 1/2. Thus if you think that QWST will appreciate by at least twice the PHX discount (to 0.79) over the next 3 months, you're better off buying QWST directly than PHX.

Could this be another reason for the PHX discount being so high? Say, half of it due to deal risk, the other half to anticipated QWST appreciation? What do the April QWST options say?

- nic
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