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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (32613)	9/30/2000 3:28:04 AM
From: Bruce Brown	Read Replies (3) \| Respond to of 54805

Mike, Just for fun, to see how the Front Office Game options could have worked out, let's take a look at the PeopleSoft acquisition of Vantive. What we know. PeopleSoft announces they will acquire Vantive. Each Vantive share will become .825 of PeopleSoft. PLEASANTON, Calif. -- Oct. 11, 1999 -- PeopleSoft Inc. today announced a definitive agreement to acquire The Vantive Corporation in a stock for stock transaction. The merger will enable the combined company to offer a comprehensive eBusiness solution providing robust applications to attract, service, retain, and analyze customers. Building upon several product integrations completed during the course of a long-term partnership, PeopleSoft will now fully integrate Vantive's customer-focused solutions into PeopleSoft's broad offering of eBusiness applications, enabling the combination of customer information, transactional data and business intelligence for a 360-degree view of the customer lifecycle. The merger will be structured as a tax-free exchange of stock at a fixed ratio of .825 shares of PeopleSoft common stock for each outstanding share, warrant, and option of Vantive, and is anticipated to be accounted for as a pooling of interests. Based upon PeopleSoft's closing stock price of $17.25 on October 8, 1999, the aggregate value of the transaction is approximately $433 million. The transaction, which has been approved by the boards of each company, is subject to the approval of Vantive's stockholders and customary closing conditions including compliance with applicable regulatory requirements. The merger is expected to close in the first quarter of 2000. At Friday's closing (9/29), since that deal was announced, PeopleSoft is up 62%. Using the conversion figure of .825 and the sale price of Vantive you made on October 24, 1999, the coversion shares would have yielded 69 shares of Peoplesoft which are worth $1,928 today. That represents a 93% increase from the sale date proceeds of Vantive on October 24, 1999. Yet, it is a loss from the original Vantive purchase to the tune of 23%. On Monday, October 25, 1999 we could have purchased 10 shares of Siebel at the open using the consolidation strategy. Those shares have split 2 for 1 two times since then bringing the conversion to a total of 40 shares worth $4453 today which is a 346% increase. What return does this represent from the original purchase price of Vantive. At first glance, 78% to date. However, we would also have been able to benefit from the tax loss of $1496 to offset long-term cap gains for our 1999 returns. So the results of the basket strategy and consolidation into the winner at least make sense in the above example. I would be curious what the results for Clarify would be running the purchase price and conversion figures into Nortel shares vs. the consolidation option into Siebel to see how it works out. Since the Front Office Game is a real time model of using the basket strategy, knowing all of that information might be useful as we look at the basket strategy for current and future use in the gorilla game. I would be happy to run the numbers for a few games I'm playing using the basket strategy once they mature to the point of consolidation. BB

To: Mike Buckley who wrote (32613)	9/30/2000 8:01:03 PM
From: Mathemagician	Read Replies (1) \| Respond to of 54805

I don't think it's reasonable to expect that there won't be any losers. Just the opposite, I think it's reasonable to think that we won't appreciate the fundamental reasons to sell at least one of the three stocks until after the price has tanked. Using the Front Office Game as an example might in fact be a good example that the game can work marvelously well despite initially choosing a stock that ultimately tanks, which I think is truly the more important point to make. My records show that Vantive was "purchased" on May 25, 1998, for a net cost of $2495.25. On 10/24/99 it was "sold" at a substantial loss generating net proceeds totalling only $998.88. That's a 60% loss in 17 months. (All numbers include commissions.) I was speaking of the losers in the aggregate. Combine the results of Remedy, Clarify, and Vantive and I have a feeling you will see a return which easily beats the market. I could be way off here, since I'm working from memory, but if I remember correctly Remedy had appreciated 140% and Clarify something like 400%. That yields a 160% return, more than making up for the 60% drop in Vantive. In fact, if Remedy and Vantive each dropped off the face of the earth and lost 100% of their value, then Clarify's appreciation would still have provided a respectable 67% return for those three companies. Of course, my numbers could be way off as, again, I'm working from memory. If they are correct, though, we see that the Front Office Gorilla Game would have been a successful investment by any normal standards even if the eventual gorilla Siebel had never been included. AFAIK, we haven't thought about that before. As a side note, this discussion highlights once again that we must always remember to focus not on the success or failure of one stock, but of our entire portfolio. Combining that with Bruce's observation that "Even more revealing is that had Siebel been the only stock "purchased" on that Memorial Day weekend in 1998, the Game would have increased in value 868%. Using the closing value on September 29, 2000, the Game has increased in value 856%. That's not at a bad trade-off for not having to guess ahead of time which of the four leading gorilla candidates would emerge as the gorilla." causes me to submit the suggestion that a list of other basket candidates be included in Project Hunt reports. M