ACTM $100 Million Cable Modem Contract with MOT Message Board

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Technology Stocks : ACTM $100 Million Cable Modem Contract with MOT

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To: Rob Preuss who wrote (978)	5/13/1999 11:21:00 AM
From: jeffbas	Read Replies (1) of 1250

You have it about right. Having recently been through an acquisition of a small cap company for stock, there are many new sources of negative changes in supply/demand for ACTM. A potential buyer of ACTM now buys CMCI. A potential seller of CMCI now sells ACTM short. An arbitrageur shorts ACTM and buys CMCI. A holder of ACTM sells it looking to buy CMCI now or later. People considering buying ACTM decide to wait for the deal to get done. The only thing positive I see is the Street interest in ACT, which may mean that if they like the merger CMCI will be relatively firm and ACTM won't drop a lot. In other words, if you can now see it more likely of ACTM at $30 in 12-18 months, you will be pretty interested in the story. Over on Yahoo I noted that at the same price/sales ratio of the players just above ACT and with some of the growth this deal would permit, you could see a tripling of ACTM. On the finances, I asked on YAHOO about the CMCI CorTelco assets on their balance sheet. The response that came back was that CorTelco filed for a $35 million IPO in April. If that goes through, the combined companies should be OK. I think CMCI was available at this time because of their poor customer track record and the fact that they are losing money. I hope that the ITT heritage means that these problems are not because of failures on the part of CMCI on manufacturing and product quality. I think ACTM has been weak for the technical reasons mentioned above, but it is possible that the fact that this merger means they will definitely not hit estimates for this year is also a problem for some people. In my opinion the downside risk on ACTM is $12-13, assuming the deal goes forward and the technical pressures continue. At a 10% discount to the terms, that would be about $5 3/8 to $5 7/8 on CMCI, which is a bit above where it was trading before rumors started leaking out. That makes sense as a possible downside target zone for buying CMCI in a couple of months when it should be clear as to the outlook for the deal being concluded.

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