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Technology Stocks : JDS Uniphase (JDSU) -- Ignore unavailable to you. Want to Upgrade?

To: Kent Rattey who wrote (6022)	2/6/2000 12:10:00 AM
From: Guy Gordon	Read Replies (4) \| Respond to of 24042

Buying ETEK for JDSU I was looking through "Guerrilla Investing" by Peter Sims (nothing to do with G&K thank god.) The premise of this book is that the small investor or trader must play to his strengths and avoid the strengths of Wall Street. This is what he has to say about Arbitrage. Avoid playing mergers and Acquisitions Playing mergers and acquisitions sounds like an easy way to invest. ... No area on Wall Street is more dominated by professionals than the risk arbitrage. When a deal is announced, the arbitrageurs immediately spring into action. They talk to the company, its competitors and suppliers, as well as to analysts, lawyers, and even government officials. They cover deals so extensively that most professional investors will not even compete with them. This certainly is not a place for individuals. In order to value the deal, the arbitrageurs must assess the likelihood of the deal being completed and the risk to the target company if it falls apart. This can be more complicated than it might seem. In some cases, a failed merger can mortally wound a target company. It shares its secrets with a competitor, many of its managers leave, and it loses momentum. <snip> When the deal is for stock, the arbitrageurs will trade the two stocks against each other, buying one and shorting the other, and often using options. These games are so sophisticated and played with such speed that it is almost impossible for individual investors to keep pace. <snip> At all costs, do not try to outsmart the arbitrageurs. They will sometimes be wrong, as they were in the case of MCI/British Telecom. However, if they keep the Target stock at a big discount, they are saying that the deal may be in trouble. You might consider selling, even if it means walking away from what looks like a solid return. If they take the stock to a premium, you might hang on for a while to see if another bid materializes. But do not overstay your welcome. This is an extremely hard game to win. I thank Mr. Sims for his warning. I bought ETEK specifically to own more JDSU at a discount. That discount was large -- JDSU was 26% above ETEK at that time. Since then I have seen the gap close to 16%, and widen again to 19% at close Friday. What am I to make of this? First, is what Sims says true? Do the Arbs control the spread between ETEK and JDSU? I am not so certain that they are as powerful as he writes. But if we accept this for the sake of argument, why is the spread changing day-to-day? There is no (publicly available) news that can account for this. I've looked. I've asked my broker at MSDW (who is also buying ETEK). I've asked. No news. I simply find it hard to believe that "the arbs" either changed their minds, or found good reason to decrease that spread from 26 down to 16 in five days. Anyone care to add to my confusion? :-)