record date...COMS had two shares listed COMS (original) and COMS-V (post distribution value).
I do not believe that there was any time where COMS reflected its post spin value prior to the distribution, other than the COMSv share which is different. COMS value was always higher than COMSv.
gator, the arbs will, as you say, use their STLW shares they get from their METHA long position to cover their short position. Remember, it shouldn't matter where they cover because the spread was locked in. They will however try to get out at the lowest price possible in order to maximize the profit from the initial short position on STLW. Anyway you should see a lot of arbs covering thus leading to the possible upward pressure on price for STLW, which affects the true value of METHA. Also these arbs now become METHA-V owners at no cost. COMSV and PALM went up for 3 months straight while the NAZ tanked in the summer of 2000. (COMSv became the only true 3COM share price after distribution of the PALM shares to 3COM holders of record) (What I have written does not mean that this is guaranteed to happen to METHA)
As Gator explained, the arbs short position is AUTOMATICALLY covered the moment STLW shares are distributed. They do not take any action at all to cover, they do not have to 'buy' any shares to cover, they do not have to decide when to cover - it is automatic. The moment the STLW shares are distributed, the ARBS have no STLW position.
The arbs must then sell their METHA position to complete the arbitrage.
ok poodle...I am sorry people if I assumed that the distribution would happen prior to opening of trades...poodle I assumed there was a transaction fee charged so I assumed it to be a covering transaction... Are you saying that it automatically happens with no transaction fee because the distribution comes with no charge? thanks for the advice.
I am just trying to piece together what is going to happen. I benefited from the COMS/PALM deal but wasn't too sure of exactly how and why the stock traded the way it did...poodle/gator if you have further info on how an arb like this one has played out before, it surely would be helpful to many on the board...thanks again.
Can you explain the COMS and COMSv situation if I was not correct on that point also?