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Technology Stocks : 3Com Corporation (COMS) -- Ignore unavailable to you. Want to Upgrade?

To: Steve Porter who wrote (17550)	6/16/1998 10:21:00 PM
From: joe	Read Replies (2) \| Respond to of 45548

Steve, Below is the TSC article which talks about COMS takeover rumours. I don't believe it myself. But when it comes to $$, I check all my bases if I can. Sometimes, I even learn something in the process. One thing that still puzzles me is the options call buying today. It was pretty intense. Was it because of takeover rumours? Or was it because of good earnings expectations? I'm hoping the latter. I think this is important, because (IMO) it's better that the price be going up on something more fundamental like earnings than on takeovers. The more evidence I collect that earnings are good...the more I can see $$ in the bank. Takeover, IMO is not going to happen, so if price is going up due to this, then it will go down due to it not happening. BTW: What's with this Nortel and Newbridge. You guys have your own version of Silicon Valley up there? :-) Or are you trying to start one? ------------------------------------------------------------ Options Buzz: 3Com Activity Signals a Possible Takeover By Dan Colarusso and Kevin Petrie 6/16/98 6:17 PM ET In the latest round of merger roulette, networker 3Com (COMS:Nasdaq) emerged Tuesday as the target du jour for speculators. Shares of 3Com jumped Tuesday on rumors that the networker might be acquired by Ericsson (ERICY:Nasdaq ADR), a supplier of telephone equipment. A 3Com official declined to comment on the speculation. Ericsson representatives could not be reached for comment. The networking sector is quivering with takeover talk. Recent deals show that suppliers are positioning themselves to exploit the convergence of voice and data networks. Bay Networks (BAY:NYSE) confirmed Monday it will fold itself into Northern Telecom (NT:NYSE), adding to the recent combinations of Tellabs (TLAB:Nasdaq) and Ciena (CIEN:Nasdaq) and Alcatel (ALA:NYSE) and DSC Communications (DIGI:Nasdaq). Ericsson was widely rumored to be courting Bay. 3Com rose 1 7/16, or 6%, to 25 9/16 on volume of 12.5 million shares. With a market capitalization of $8.1 billion, the stock trades at only 1.5 times trailing revenue. Ericsson rose 1/16 to 26 3/8 as 6 million shares changed hands. In addition, the COMS pit at the Pacific Exchange, where the company's options are listed, was a madhouse, traders said. Speculation intensified that "smart money" was playing the company as a takeover target. The intensity in the 3Com options Tuesday certainly points in that direction, but there have been cases where similar action has occurred only to lead to nothing. Next week 3Com will report earnings for its fiscal fourth quarter ended in May. The date has not been set, according to a 3Com official. A First Call survey of analyst estimates predicts the networker will earn 17 cents per share, down from the view of 18 cents last week. While some traders might be playing for an earnings-related move, the call buying was accompanied by very little put volume, the second leg of popular straddle or strangle positions preferred by sophisticated institutions anticipating a big move in either direction. They also wouldn't be dealing with the June options, which expire Friday. 3Com options trader Karim Tahawi of Kessler Asher said major securities firms joined the action with "outright buying" in the middle of the morning and established a pace that continued throughout the day, mostly in calls at the 25 strike. Tahawi said "large orders" peppered the June and July 25 calls made on behalf of primarily institutional players. Call buyers sent volume on the June 25 call contract to more than 5,500, a gamble that the company's stock will close above 25 at Friday's expiration. By this point in that particular option's life, the "time premium" is about nil and the option may move in lockstep with the stock. Those June 25 calls were relatively cheap today, although they rose 9/16 ($56.25) to 7/8 ($87.50). The July calls were busier with heavy volume in the 25 (4,353 contracts), 27 1/2 (2,789) and 30 (1,263) strikes. The prices of each increased considerably with the 27 1/2 closing at 1 5/16 ($131.25), up from 7/8 ($87.50). Shrewd options traders often play takeover candidates a month out from the current expiration to ensure that if their directional bet is correct, they're not tripped up by any delay in M&A negotiations. Trading in the June 30 calls, where volume exceeded 2,000 contracts despite a price of just 1/16 ($6.25), was done mostly within the P-Coast trading crowd to manage risk. Investors have torn about 25% from 3Com's stock since early May as they worry that its inventories are piling up once again. Others are concerned that price competition continues to pinch 3Com's profit margins. While the company intends to hire a chief operating officer and assume certain tasks, CEO Eric Benhamou has denied rumors that he intends to resign from 3Com.