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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Allen Furlan who wrote (10958)	7/17/2000 10:32:37 PM
From: valueinvestors	Respond to of 78836

Allen - I saw your post about option adjustment on 3COM. I have done some work on this and it is clear that it is great if you are a 3COM employee option holder. Using today's closing price of COMS and COMSV, the dilution would be enormous. COMS closed today at $67 and COMSV closed today at $12. The quantity of options is adjusted by multiplying the existing number of options by the COMS price and dividing by the COMSV price. Using the roughly 40mn options that COMS has outstanding, multiplying by "the ratio" of 5.8 (67 divided by 12) gives new options outstanding of 220 mn (on a base of 350mn primary shares). To adjust the strike price, take the strike price of each option and divide by the ratio (5.8). According to the footnotes of last years 10K there were 49mn options outstanding with an average strike price of $25.60. 3Com has already told us that due to option exercise, expiration, and new grants the net effect of all these combined between the 10k and today is to decrease the number of options by 9mn, I will assume that lower strike priced options were exercised and higher priced granted, making the new average strike price a few dollars higher, call it $28. Now divide the old adjusted average strike price of $28 by the ratio of 5.8 which results in a new average strike price on the stub of about $4.80 per option. Of course these will all move around with the price of COMS and COMSV prior to July 27, but these are illustrative of what would happen were today the distribution day. I also wanted to tell everyone about a new website for Value Investors called valueinvestorsclub.com