UBID - an IPO spinoff of Creative Computers Message Board

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Technology Stocks : UBID - an IPO spinoff of Creative Computers

UBID 3.000

0.0%

Jan 21 4:00 PM EST

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To: dlc who wrote (263)	12/23/1998 11:53:00 PM
From: LittleMax	Read Replies (3) of 581

Shorting UBID vs. MALL Your concept is right but the math is a little off. The value of MALL's stake in UBID is indeed $133 per MALL share at today's close for UBID. However, some of that value is already reflected in MALL's closing price of $59. Obviously, with the way I-stocks are valued, there is no way to estimate what MALL would be worth without its UBID ownership. On the other hand, there is no way to explain why MALL is trading at less than half the value of its equity interest in UBID. In strict financial terms (to the extent they even apply to I-stocks these days), MALL should trade at UBID * .71 * x + y, where .71 is the UBID ownership, expressed in MALL shares; x is a discount factor applied to the UBID shares held by MALL that reflects the fact that a risk-free arbitrage cannot be established by shorting UBID against MALL and that MALL will not distribute its UBID shares for six months; and y is the value of MALL exclusive of UBID. (See post 1312 on the MALL thread.) My guess (and it's only a guess even though I am an economist) is that a reasonable value for x in a risk arbitrage sense would probably be a minimum of .7 - .8 and a minimum value for y would be at least $15-20. This implies a minimum price for MALL in the range of $110-$125 with UBID at $188. It also implies that the price of UBID could fall by something like 70 percent before MALL is worth less than its current $59/share. The implication is clear: Buy MALL and buy more MALL. If you're really sophisticated and want to create a hedge (and you can't short UBID), consider shorting proxies for UBID (e.g., EBAY, ONSL) or buying puts on the Internet index.

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