Hewlett-Packard to Acquire 3Com for $2.7 Billion | Hacker News Reader

Hewlett-Packard to Acquire 3Com for $2.7 Billion

nytimes.com

36 pointsasnyder23 comments

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That news was soooo leaked before hand.

Here's the stats on the option board today:

- 8085 calls traded, 6 puts traded

- 95% of those calls were bought on the ask

- Open interest for the entire board was 13k, so very unusual.

- Around noon, we had buys go at the offer (to open) for 3k Nov 5 calls and ~3k Dec 5 calls.

Nice chunk of change for an overnight trade.

I'm sorry but i don't understand what it all means, would you care to explain?

From http://en.wikipedia.org/wiki/Call_option:

"The buyer of a call option wants the price of the underlying instrument to rise in the future"

I'm no expert but I think it means a lot of people knew this was going to happen and bought call options knowing the share price would rise. 3com closed at $5.69 and HP bought it for $7.90.

Point by point explanation:

* 3Com stock is up 35% (at $5.69) in after-hour trading because HP is offering a premium to the current stock price to acquire it. A call option to buy the stock for the fixed price of $5 (until it expired next Friday) sold for 80 cents when the market closed.

* 3Com is up 2 bucks (35%) in the after market. The value of that call option will increase by around that mount. So the price of the option went up from 0.80 to ~2.80. That is an increase of 250%, which is way higher than 35%. This leverage is one reason people trade options.

* The option buyer used a market order ("bought on the ask") to buy a ton of options, which is executed immediately at current market price. More cautious buyers tend to use a limit order in markets that don't trade a lot (like this one). A limit order will buy at no more, or sell at no less, than a specific price. This will move the market price less.

* Given that the acquisition was announced later today, this large order of options is suspicious. This trade will almost certainly be investigated by the SEC.

I don't think you can be taught stock trading in an HN reply; when someone speaks in an interesting but undecipherable jargon, it's best to make a mental TODO note of it and do your own independent research.

In a nutshell, what he means is that news of the acquisition was leaked to the public, which explains the huge interest in the 3COM stock; it saw unusual uptick in the traders' interest in it, meaning there was information those traders were privy to. If you know someone was going to buy a company for an X amount of dollars per share, and you had the opportunity to purchase those very shares before the acquisition for X-Y dollars. If you bought N shares, you would be making N*Y dollars in profit, with in a few days (until the sale is final.)

Not bad.

what he means is that news of the acquisition was leaked to the public

That's the thing, it wasn't. The entire volume was done on a single trade by a single buyer... that's fraudulent.

Same thing happened with Perot systems, and the guy got picked up by the SEC.

Sure.

Say there's a stock, and on average it trades 100,000 shares per day. And then one day, we see large orders, someone actively buying shares on the offer, about 450,000. And then the day after the stock jumps up on being acquired. The odds are very high that someone new ahead of time.

The same thing happens in the options market. The COMS options market is relatively dull. It doesn't trade much, and there are not that many contracts open. Then all of a sudden a player goes out and buys 6,000 calls, half of which expire in 10 days. These contracts give them the right to buy COMS at $5 a share.

The volume traded today was about 17x normal, and these contracts were bought to open.

So at 12PM a trade came out and bought 3800 Nov 5 Calls for 0.65. They also bought 3100 Dec Calls for .80. I'm sure this wasn't a calendar spread as the November calls were bought not sold.

So someone put about 500k down on a very speculative bet. And now the name is up 35% aftermarket.

Not including any premium, the contracts are now worth about 2.70. So they made about 1.5M, or a 300% return overnight.

Anyways, I just laid out the premise for an SEC investigation (and hopefully) prosecution. If they don't they're either cowards or stupid.

Thanks for explaining. Where did you get the information/data about this?

livevol.com

It seems like Cisco basically forced HP to compete with its high-margin network gear business, since Cisco moved into HP's server territory earlier this year (http://www.nytimes.com/2009/01/20/technology/companies/20cis...).

It looks like attacking a competitor's cash cow often results in the competitor attacking your cash cow?

I'll be curious to see how it shakes out for each of them. It seems to me, from my admittedly ignorant view, like opening the Russian front was to Germany for both HP and Cisco. I suspect it's going to hurt both of them in the end, maybe to a significant degree. HP isn't really the clear leader in their space, though, but Cisco has so little history and mindshare in the server space that it seems like a pretty evenly bad idea on both sides.

I don't know who will eat into Cisco market share when they make mistakes or spread themselves too thin, but I'm sure that Dell is ready to step in whenever HP makes mistakes or loses focus (as has been happening for years).

Anyway, I believe saying Cisco forced HP to do this isn't quite accurate. The other option for HP might have been to double down on their own strengths, and just kick ass while Cisco tries to figure out how to crack a market where they have no brand awareness (a Cisco is a router...everybody knows that...would you buy a roll of Kleenex paper towels?). Cisco could very easily spend themselves out of the running, since they'll have to spend a lot more on sales and brand awareness for their server line than HP will for the same impact. Even if Cisco is a better run company, which I do believe is true, they're signing on for an uphill battle.

Yes, but it'll be good for everyone else, which more important.

One of the most positive things about free markets is that competition lowers prices.

HP can now sue practically everybody else in the market sector for infringing on what must be the mother lode of networking patents.

You don't think it would be a MAD situation to sue Cisco over networking patents?

It's so much easier for Cisco to compete with HP than it is for HP to compete with Cisco. HP is competitive in access-layer switching and that's about it. No presence in big iron carrier class core gear, wireless, VOIP, security/IDS, CPE devices such as cable modems & IP set top boxes, infrastructure, SOHO consumer gear, etc. Meanwhile Cisco just has to slap together an X86 server, write some management software, and they've at least got a complete product line to compete with HP. I imagine HP is grabbing 3COM to make a push towards SOHO/consumer markets because 3COM isn't relevant in any of those above listed markets either for the most part. Cisco is more worried about Juniper, Brocade, Arris, etc. They are aggressively competing with Cisco in a lot of important markets. Cisco can offer a 40-50% discount and still be unable to compete with some of these companies on pricing. Unless you really need some screwball exotic feature set that Cisco offers you can find feature/performance parity easily. Interoperability between vendors is much better these days so there's less vendor lock-in and more acceptable of mixed networks. You might use Cisco in the core but go elsewhere for almost everything else.

One thing to note: HP has been in the networking business for almost a decade. Most of 3com's products aren't necessarily new to HP but will instead augment the existing portfolio. http://www.procurve.com/

hdmoore: HP plans to buy 3Com ($2.7b), which owns TippingPoint, which runs ZDI [Zero Day Initiative, a market for zero-day vulnerabilities], which has a 1128-day [vulnerability] in HP products.

"Maybe it was cheaper to buy them than fix all the bugs". (rim shot!)

I wonder what will happen with the 3Com brand, because IMHO 3Com > HP when it comes to networking. I suppose that it will disappear, but after how long? For example the Thinkpad brand still exists even if it was bought by Lenovo some years ago, while the Compaq brand wasn't used too much.

I wonder if the 3Com brand is worth anything these days. I haven't heard anything interesting from 3Com in years; the switching market is dominated by Cisco/Juniper/ProCurve/Brocade/Extreme and even smaller newcomers like Force10 seem to get more attention than 3Com.

Yeah, it's not like any 49ers fans are worried.

For branding 3COM would be better suited for the consumer market.

I held 3Com through a couple of years of steady decline back in the late '90s waiting for it to make a dent in Cisco. It never did, and I lost more on it that I've ever lost on any other stock. I don't have much confidence that HP management can alter that situation in any significant way. But then, I don't have much confidence in HP management since the Compaq merger, or even a few years before.

The price seems rather "cheap", I didn't realize 3COM had fallen down so low.

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