btb@hogpc.UUCP (B.BURGER) (02/01/84)
All the calculating of whether "old AT&T" stock is worth more or less than the sum of its parts is silly. In general, the whole will equal exactly the sum of the parts. If the old sold for more than the new, then everyone holding the old would try to sell and buy the new instead, driving the price back to equilibrium -- and vice versa (follow that?) Of course, the market isn't perfectly efficient, so at any given instant either the old or the new is a slightly better buy -- but they should tend to be equal. The suggestion that the sum of the new should exceed the old because "you can pick whatever pieces you want" with the new is silly. While an individual can pick and choose, investors as a group hold the same number of shares in each piece (with the exception of AT&Twi, which has 10 times as many shares outstanding). Just remember that for every seller there is a buyer. Please think about this before flaming, and you won't. --Bruce Burger AT&T-Information Systems Lincroft, NJ
peters@cubsvax.UUCP (02/02/84)
Bruce Burger (houxn!dossamg) states that, if old and new stock is
available on the open market, only temporary market inefficiencies
should allow price differentials to exist, and these differentials
will be small.
This is untrue, historically. There are a number of "closed end mutual
funds" traded on the open market which consist of market-baskets of
securities. According to efficient market theory (of which Bruce's
argument is an example), these should always trade very close to
the value, per share, of the market basket which they represent, after
perhaps allowing some small discount for administrative costs, etc.
Historically, however, they sell for *large* discounts -- like 20% !!!
These discounts are public knowledge... in fact, the NY Times lists
them (under "Publically Held Funds") in the Saturday business section,
and the Wall St. J. lists them Monday, I believe. These discounts also
are quite volatile.
Case in point: several years ago I bought two of these -- U. S. & Foreign
Securities and Tricontinental Corp., both of which are traded on the NYSE,
when the discount was about 20%. Tricontinental recently announced that
it plans to dissolve and distribute its assets to the stockholders ...
whereupon the discount disappeared!!
Burton Malkiel's "Inflation Beater's Investment Guide" talks about how
to build an investment strategy using these funds. He is one of the
framers of efficient market theory, and he confesses he doesn't know
why this inconsistency exists.
By the way, I have no views on how this relates to the breakup of AT&T.
I recently traded my (old) AT&T stock for the "Equity Investment Fund", which
holds a market basket of the child companies... but after I did this
it occurred to me that I will lose money if this starts trading
at a discount....
{philabs,cmcl2!rocky2}!cubsvax!peters
(Peter S Shenkin; Dept of Biol Sci; Columbia Univ; NY, NY 10027; 212-280-5517)rs55611@ihuxk.UUCP (Robert E. Schleicher) (02/03/84)
The comment that many closed-end mutual funds sell for big discounts with respect to their actual cumulative market value is a good one. The situation is analogous in some ways with the situation that exists when the total value of a company's stock is appreciably lower than the market value of the assets owned by the company. When this occurs, there is quite often a takeover attempt, with liquidation of the company as the object. The plan is: get control of the board of directors, or present a resolution to the shareholders, via the proxy voting cards. Then, liquidate the company's assets, and distribute the proceeds to all of the shareholders. This situation,which sounds like it shouldn't exist, is actually relatively common with companies whose assets are largely land, mineral rights, timber rights, etc. Thus, the assets have intrinsic value on the open market (as opposed to assets like factory machinery, which is only of use to the company itself, or to a competitor). There was an example in Fortune magazine recently, in which a company owned land surrounding Disney World in Florida, which was worth about $20/share (prorated out). At the time, the stock of this company was selling at about $8, probably reflecting the fact that all of this land was not producing any income. Theoretically, dissolvingthe company and selling the land would give $20 per share, a 250% gain. Of course, the company's officers aren't thrilled by this idea, unless they also own a boatload of stock. I've also heard of liquidation attempts on closed-end funds. When news of this hits, it tends to drive the price of the fund toward the actual value of the holdings of the fund. Bob Schleicher ihuxk!rs55611
dossamg@houxn.UUCP (A.GOPIN) (02/04/84)
houxn!dossamg is NOT Bruce Berger!!!!!
peters@cubsvax.UUCP (02/05/84)
I just looked at the NYTimes yesterday (4Feb), and found that the
"Publicly Held Funds" (forgive my incorect spelling of "Publicly" last
time!) are, for the most part, selling much closer to their book values
than in years past... in fact, only Baker-Fentress (a respectable fund)
is selling at a greater than 10% discount. There are also some "Special
Purpose Funds" listed in the same column, some of which trade at discounts,
and some closer to book. What I *don't* understand is that some of these,
especially, are selling at much *greater* than their book values... Like
the Cyprus Fund (I believe it was) is selling for 415% of the value of
the underlying securities. Anyone have any idea why? Also, has anyone
besides me out there used these funds as investment vehicles? Also, anyone
know what a "Special Purpose Fund" is?
{philabs,cmcl2!rocky2}!cubsvax!peters Peter S. Shenkin
Dept of Biol. Sci.; Columbia Univ.; New York, N. Y. 10027; 212-280-5517