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Author: jeffgro Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 102  
Subject: Re: future stock valuation Date: 11/8/1999 1:19 AM
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Hello everyone,

acv is correct. When JDS Uniphase completes its split, you will get twice as many shares as is currently "published". (Would the executives of OCLI -- who own 7.1% of the company -- want to see their shares suddenly get half credit in a merger?)

In addition, there is a gap in the current prices because of two main reasons, one of which acv points out.

As acv points out, the deal may not go through and the gap partially represents Wall Street's assessment (through arbitrage) just how likely the deal is to clear.

Second, part of the gap is simply due to the Time Value of Money. Suppose there is a hypothetical deal where company X buys company Y for $100/share. If a deal is arranged to give you 100 dollars a share sometime in the next quarter, you are not going to pay 100 immediately -- even if it is certain to close. Why? Cuz, you could put 98 dollars or so in a Treasury Bond now and get that same 100 in the first quarter of 2000. (So why put it in a risky stock arbitrage situation if you can get such a result in a safe Treasury at a lower price?) (Remember, this is only part of the price discrepancy and most of the fluctuation will result from the first reason.)


Here is a clip from the SEC filing by JDS Uniphase available at http://www.freeedgar.com

Nepean, Ontario, San Jose, California and Santa Rosa, California - November 4, 1999 - JDS Uniphase Corporation (Nasdaq: JDSU and TSE: JDU) and Optical Coating Laboratory, Inc. (OCLI) (Nasdaq: OCLI), announced today the signing of a definitive agreement for the companies to merge in a transaction that will solidify their long-standing partnership.

The agreement provides for the exchange of 0.928 shares of JDS Uniphase common stock for each outstanding share of OCLI and is valued at approximately $2.8 billion. Closing of the transaction in the first calendar quarter of 2000 is anticipated, subject to certain closing conditions, including the obtaining of required clearances under the Hart-Scott-Rodino Antitrust Improvement Act, other governmental approvals and the consent of OCLI stockholders. Following completion of the transaction, OCLI will operate as a wholly owned subsidiary of JDS Uniphase.

Using the announcement and doing some math we can verify the split answer.

There are currently 14,160,066 shares outstanding of OCLI. They are being turned in at a ratio of .928 when JDSU is at 197. So...

14,160,066 * .928 * 197 = $2,588,686,625 and change.

This is approximately what the press reports state. (The discrepancy is due to (1) absorption of debt and (2) stock options that OCLI employees currently have which will be converted or exercised and paid out to the OCLI employees who own them.)

Now, suppose that JDSU splits and b/c splits cannot impact firm value by definition, lets see what we have to get. $2.6 billion must equal 14,160,066 * (Share exchange ratio) * (197/2)

So, $2,588,686,625 = exchange ratio * 1,394,766,501

$2,588,686,625/1,394,766,501 = 1.856...


There's the answer. Hope this helps!

Jeff
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