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Technology Stocks : LSI Corporation
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To: BWAC who wrote (14496)8/22/1998 2:02:00 PM
From: DanZ  Read Replies (3) of 25814
 
BWAC,

I'm not sure if I understand what you are saying. There are two issues here: book value and market value.

First book value: The only way that Symbios would increase LSI's book value is if it is worth more than LSI paid for it. Otherwise, LSI simply exchanged balance sheet items and the net result is zero change in book value. Since LSI paid for Symbios with stock it's a little more confusing. But for the sake of discussion, let's assume that they had paid with cash. The balance sheet after the transaction would show a decrease in cash by the amount they paid and other balance sheet accounts would be adjusted so the net change to the book value is zero.

Another way to look at it is this: When you bought LSI, you converted an asset (cash) into stock. At that particular instant in time, there was no change to your net worth.

Now market value: What the market does to LSI is based on earnings expectations for the combined company and how beneficial investors think that the $650 million exchange of assets was. I agree with you that the $15 price includes the effect of Symbios on future earnings. But it's not correct to say that the market values the old LSI at 9.50 simply because they paid 5.50 for Symbios. That would only be true if LSI got Symbios for free and the market placed a value of $5.50 on Symbios.
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