FNCE 239 Lecture Notes - Lecture 18: Biovail, Herbalife, 3Com
21 Apr 2016
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3/31/16: lecture 18 notes: limits to arbitrage: short sales constraints. Negative stub values- an extreme case of mispricing. This shows that the parent company is severely undervalued. The market is effectively placing a negative value on the parent company if you exclude sperry from its portfolio: negative stub values prove market inefficiency. On 12/31/00, 3com shareholders would receive the remaining 95% of shares at 1. 5 palm share price for each 3com share. It was observed that palm"s share price after the first day of trading: . 06. That is, 3com shareholders receive . 59 = 1. 5*95. 06. 3com shareholders will receive the remaining 95% at 1. 5 palm share price (. 59 = 1. 5*95. 06). This means that 3com shareholders value palm greater than it values 3com. Essentially, the value of 3com without palm is negative. The implied value of 3com"s non-palm assets and businesses = 81. 81 142. 59 = -
