The following WSJ article is 3 days old, but it's very telling of what's going on with MALL.
December 7, 1998
Creative Computer Dn; Arbitrage-Related
Shorting Cited
By JOELLE TESSLER
Dow Jones Newswires
NEW YORK -- Shares of Creative Computers Inc. (MALL) have fallen
about 40% over the past two trading days as investors apparently short the
stock trying to capitalize on an arbitrage opportunity created by the
company's spin-off of online auction operator uBid Inc. (UBID) late last
week.
However, at least one analyst called their strategy misguided.
Creative Computers last Friday spun off about 20% of uBid in an initial
public offering of 1.58 million shares. Like a number of other recent Internet
IPOs, uBid's shares - which were priced at $15 each - quickly shot up
several hundred percent in the aftermarket. The stock climbed to as high as
60 1/2 and closed at 48 Friday.
But uBid's steep ascent has left Creative Computers' remaining 80% stake
in uBid - which Creative Computers plans to issue to its shareholders in
another six months - worth more than Creative Computers' current market
valuation.
With Creative Computers' shares trading at about 23 Monday, the company
- which had about 10.35 million diluted shares outstanding as of its latest
earnings report - has a market capitalization of about $238 million. And with
uBid's shares trading at about 43 Monday, Creative Computer's remaining
80% stake in uBid is valued at about $270 million.
One source explained that it would make sense for investors to short uBid in
this situation since the stock will likely fall to better align the two companies'
values. But, he explained, because investors cannot short uBid's shares until
30 days after the IPO, some are instead shorting Creative Computers
thinking they can short uBid this way.
Noting that Creative Computers' current valuation does not assign any value
to the company's core computer direct marketing business, he added that
this strategy does not make sense because - assuming that Creative
Computers' core business does have some value - the company's market
cap already assumes uBid will trade lower in the aftermarket.
One source speculated that Creative Computers shares are also down
following the uBid pricing after running up ahead of the spin-off on
expectations that the IPO would perform much like other recent Internet
offerings.
He added that after seeing EarthWeb Inc. (EWBX) climb more than 600%
and TheGlobe.com Inc. (TGLO) climb almost 1100% in the days following
their pricings, investors may be disappointed that uBid rose only 400%.
In active Nasdaq trading, Creative Computers' shares were recently down 3
1/4, or 12.4%, at 23. And uBid's shares were down 4 1/4, or 8.9%, at 43 3/4.
Company officials were not immediately availbable for comment. |
