Assignment7Answers - Assignment 7 Answers Johnson Graduate...

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Assignment 7 Answers Johnson Graduate School of Management Equity Derivatives and Related Products Due on November 16, 2010 Professor Mark Zurack It’s November 4, 2010 and Doug Smith (35 years old), the CEO of Adaptstore Co, a private company producing fiber host adaptors for storage device use is faced with the biggest financial challenge of his life. Four weeks ago, his company was acquired by QLogic Corp, a public company that simplifies the process of networking storage for OEMs, resellers, and system integrators (NASDAQ: QLGC, $17.91 on 11 /4 /10). The transaction, which closed and was announced to the public a month earlier, was tax exempt in the form of stock-for-stock. Doug takes a second glance at the stack of transaction documents. He is accustomed to dealing with complex issues in his business, but this acquisition represents a myriad of moving parts. Doug thinks about all the tax, legal, and economic implications of the transaction: Tax The acquisition is a tax exempt, stock-for-stock merger. This enables Doug to maintain a long term holding period in the shares. Legal Doug has received privately placed shares in accordance with Rule 144. Doug resigned from his position as CEO on the closing date of the merger and he is not affiliated with QLGC. Doug’s legal council is comfortable with hedging a privately placed stock that has been held for more than two weeks. Economic Last month, Doug received 4.8 million QLGC shares, which are now worth about $86 million. The stock has traded in a tight range since then, with views on the street mixed. Doug is pretty bullish on the company long-term but concerned that the shares may drift lower in the upcoming year. Doug is not adverse to taking risk, but he is uneasy about having so much of his net worth depend on the performance of one single stock, when he is not involved in the day-to-day operations of the company.
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Doug decides to write down a list of his objectives: Execute a strategy which reflects his outlook in the stock
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This note was uploaded on 01/25/2011 for the course NBA 6940 at Cornell University (Engineering School).

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Assignment7Answers - Assignment 7 Answers Johnson Graduate...

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