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Technology Stocks : Cabletron Systems (CS: NYSE) -- Ignore unavailable to you. Want to Upgrade?

To: Bron-y-aur who wrote (4903)	9/4/1998 12:45:00 PM
From: Gary Korn	Respond to of 8358

samg, NETVA/CS is an arb play. Several months ago, I bought 1,500 NETVA and shorted about 923 CS at the same time. Being a little freaked by CIEN/TLAB, I unwound when the spread between the two narrowed (as happens when the merger clears the FTC and the SEC approves the proxy materials). Currently, the effective spread is quite small (only .6), indicating the market's pretty strong belief that this deal will happen. The shareholder vote is on 9/25. (By way of example, when I first did this arb spread, the spread profit between 1,500 shares of NETVA long and 923 shares of CS short was about $1,500; now, the same spread profit is about $500). If the deal doesn't happen, NETVA is a money losing venture, and in this market it could suffer some. However, you would have to see where NETVA was trading before the merger announcement. There is the possibility that CS is pulling NETVA down, and not vice-versa. I really don't know. My gut is that this is a done deal and, on or about 9/25, 1000 shares of NETVA becomes 615 shares of CS (with .4 shares being converted to cash and credited to your account). Actually, as most of the deals go through, to me the bigger issue on an arb play is how much equity gets tied up and for how long. Going long one stock and short another ties up equity both ways. You have to ask whether the return, in x months, justifies the expenditure. Best, Gary Korn