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Technology Stocks : Creative Computers(MALL) -- Ignore unavailable to you. Want to Upgrade?

To: John Martin who wrote (1255)	12/21/1998 12:43:00 PM
From: Clarksterh	Read Replies (4) \| Respond to of 1634

Re - My take on the discount is that the market doesn't think UBID can maintain these levels for the next 150 or so days until the distribution. There are lots of possible reasons for the discounted MALL price, but this isn't one of them, at least not by itself. If it is guaranteed that in 6 months (or 1 yr or ...) that MALL will indeed give a tax free dividend of 0.7 shares of UBID, then I can set up an arbitrage: Today: 1) I buy 100 shares of MALL - cost ($3500) 2) I short 70 shares of UBID - cost $4800 TOTAL = I pocket $1300 today At spin off it makes no difference what UBID is selling at since I then get 70 shares of UBID to cancel my 70 short shares of UBID and thus this impacts my wealth not at all. But I am still left with 100 shares of MALL which I can sell for, say, $1500. Thus, assuming that the tax free spin off of 0.7 shares of UBID per MALL share is guaranteed it makes no difference what the price of UBID is at the spin off date. There is an arb opportunity which should bring the prices into line now (shorting UBID applies downward pressure, and going long on MALL applies upward pressure.). Clark PS Some possible factors which could be causing the difference: 1) People believe that the spin off won't happen. 2) People believe that the spin off won't be tax free. 3) People believe that MALL will dilute their shares and hence give out less than 0.7 shares of UBID for each MALL share. 4) There aren't enough UBID shares available to short since the float is so small.