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Technology Stocks : WCOM -- Ignore unavailable to you. Want to Upgrade?

To: MoneyPenny who wrote (6823)	6/21/2000 2:29:00 PM
From: MGV	Read Replies (1) \| Respond to of 11568

-- =DJ IN THE MONEY:Why WorldCom-Sprint Arb Spread Is Narrowing -- By Michael Rapoport A Dow Jones Newswires Column NEW YORK (Dow Jones)--The planned merger of WorldCom Inc. (WCOM) and Sprint Corp. (FON) is in big trouble. The European Union is reportedly set to block the deal, and the U.S. Justice Department may decide soon to oppose it as well. You'd expect, then, that the spread between the two companies' stocks would be widening, as investors see an increased risk that the deal may not get done. You'd be wrong. Oh, it's still a pretty wide spread - more than 19% - between Sprint stock and the value of the WorldCom stock that Sprint shareholders are to receive in the merger. That's a hefty premium that arbitrageurs and other investors are demanding as compensation for taking on the risks involved in the deal. (A more typical spread for a deal not seen as especially risky is 5% to 10%.) But that spread has actually been declining in recent days - partly because the arbs whose trading often governs such a spread appear to be staying away from the deal, partly because investors see the two companies as having diverging prospects if the deal falls apart. Less than a week ago, the spread was above 23%, in the wake of an admission from Sprint Chairman William Esrey that regulatory approval for the deal was uncertain. But it's been narrowing ever since, even as concern grows that the merger may be blocked on antitrust grounds. On Wednesday, for instance, WorldCom stock was trading for $40 a share. The deal calls for Sprint shareholders to get WorldCom stock worth $76 a share, but only if the stock stays within a specified price range - and it's now below $41.435, the bottom of that range, as it has been a number of times over the past two months. That means Sprint holders would get 1.8432 WorldCom shares for each Sprint share, or stock worth $73.73. With Sprint stock trading Wednesday for $59.25, that means the spread is 19.6% - well below the recent high of 23.4% last Friday. One possible reason for the decline is the apparent lack of interest from arbs in playing the deal. Normally they'd be expected to buy Sprint's stock and short WorldCom's, locking in the wide spread as profit in exchange for assuming the risk that the deal won't be completed. But since the deal represents a combination of the No. 2 and No. 3 long-distance companies, as well as two firms prominent in the Internet-backbone field, it's been apparent from the beginning that it faced a potentially rocky road with antitrust regulators. Arbs, whose stock in trade is assessing risk, may have stayed out of this one because it was seen as just too risky - removing a key factor that would have regulated the spread. "I think that to a great extent, this has not been a great arbitrage play because from day one there's been a big concern about the antitrust approval," said one arb who didn't want to be identified. Here's a second potential reason, suggested by other arbs: WorldCom needs this deal more than Sprint does. WorldCom lacks wireless operations - its desire for Sprint's wireless assets was a big reason the merger happened in the first place. If the merger is blocked, WorldCom faces a choice between buying another wireless company at a stiff price or selling itself to another telecom giant. By contrast, Sprint would likely be a hot property for other potential partners if the WorldCom deal falls apart. That means that as investors start to think about what might happen if the merger isn't completed, Sprint's stock is holding up while WorldCom stock falls, the arbs noted - thereby narrowing the spread. A Sprint spokesman declined to comment on the stocks' movement. A WorldCom spokesman couldn't be reached. (END) DOW JONES NEWS 06-21-00 01:54 PM- - 01 54 PM EDT 06-21-00 Symbols: US;FON US;PCS US;WCOM GB;MCW DE;WCOX US;WQM DE;WCO US;LDQ Source DJ - Dow Jones