US Robotics -- Good time to short? Message Board

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Technology Stocks : US Robotics -- Good time to short?

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To: J.R. who wrote (136)	3/1/1997 11:50:00 PM
From: Stephen Leung	of 142

Be wary for any counter-offers Excerpt from San Francisco Gate The bears have been growling for months that modem-maker U.S. Robotics has had it as a standalone company with a limited product line. But that doesn't mean 3Com investors are getting bamboozled. Yesterday, 3Com offered to buy U.S. Robotics in a stock swap valued at $6.6 billion. U.S. Robotics had been seeming to lose steam over the past two quarters. Its stock had fallen from $100 in May to $61 before the merger was announced after the market closed. (In after-hours trading, it jumped $10.50 per share to $71.50.) Last quarter's earnings came in just below analyst forecasts, as profit margins began sliding. Furthermore, Robotics began taking longer to collect unpaid bills, which is often a sign of trouble. The company attributed the longer collection period to an increase in international sales. But the bulls claimed that its new line of superfast modems that were rolled out this week would reverse the decline. If that's true, then why would Robotics sell out when its stock is way off its high? And why would it be willing to take 3Com's battered stock in exchange for its own? (3Com shares have lost half their value in recent weeks and usually beaten-up stocks don't make good currency.) Because it's a great opportunity for both companies to quickly -- and fairly cheaply -- get into each other's lines of business. It's also a bargain for both companies: 3Com is getting Robotics at a discounted price, and Robotics obviously assumes that its investors will make out like bandits with 3Com stock as the benefits of the deal start to play out. There's very little overlap between the two companies, and a combination would give both companies a much broader customer base. 3Com makes networking switches that help computers within a company talk to each other. Robotics' modems will help 3Com get outside the corporate world into the consumer market and also into the market of providing modems to Internet service providers -- a rapidly growing business. Final point: This deal, if it goes through, will make 3Com a stronger rival to Cisco Systems. Will Cisco, which has been on an acquisition binge lately, turn around and try to outbid 3Com? Stay tuned.

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