Agilent dutch auction $32 to 37 for 73 million shares out of 500 million

Discussion in 'HP' started by dvdpleasures, Nov 28, 2005.

  1. dvdpleasures

    dvdpleasures Guest

    How do we calculate possible effect on value & ROI of the upcoming
    Agilent dutch auction?

    I'm trying to decide what to do with my 38 shares of Agilent (A),
    whether to tender them for the upcoming dutch auction or not. We only
    have a few days to decide.

    Given an investor who bought 100 shares of HP at $55 (currently HWP) in
    August of 1998; and given the subsequent June 2000 spinoff, 38 shares
    of Agilent were produced from those 100 HWP shares with a cost basis of
    22% x $55 = $12 per share for the A stock (I think).

    Today, given Agilent has 500 million outstanding shares and given the
    roughly 15% repurchase (73 million shares) at $32 to $37 per share; and
    given the current price of roughly $35 per share, how do we calculate
    the shift in value from the $2.7 billion repurchase and subsequent
    stock valuation?

    I'm confused about whether or not to tender my 38 shares of A to this
    dutch auction due to my inability to ascertain what the expected value
    & ROI would be of selling them vs keeping them.

    I'm guessing any one share will be worth 115% more than it is today due
    to the repurchase. At today's prices, that makes its value about 1.15 x
    $35 = $40. And, I'm guessing my current ROI if I were to tender them at
    $35 would be 27$ per year since 1998.

    Does this mean that the expected calculated rise of A will be to $40
    the day after the dutch auction completes?

    I'm so confused - Please help me understand the mechanics better,
    Karin

    REFERENCES:
    http://biz.yahoo.com/bw/051114/20051114006188.html?.v=1 (Dutch Auction)
    http://www.thestreet.com/funds/taxforum/969115.html (Cost Basis)
    http://www.hp.com/hpinfo/investor/resources/faq/infostmt.pdf (Cost
    Basis)
     
    dvdpleasures, Nov 28, 2005
    #1
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  2. dvdpleasures

    dvdpleasures Guest

    That was supposed to say the ROI at the moment is 27% (not $27) per
    year for the 7 years since I bought the 100 shares of HP at $55/share.

    How does a pour soul such as I determine if this dutch auction is a
    good deal or not?

    Karin
     
    dvdpleasures, Nov 28, 2005
    #2
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  3. dvdpleasures

    dvdpleasures Guest

    I'm beginning to doubt my math (I'm so very confused).

    HWP COST BASIS:
    100 sh HP @ $5,400 x 78.04% at Agilent spinoff = $4,214.16 cost basis
    That makes the cost basis for HWP $42.14 per share.

    AGILENT COST BASIS:
    $5,400 x 21.96% = $1,185.84 cost basis for 38.14 shares
    That makes the cost basis for Agilent $31.09 per share.
    But there's that matter of the taxable .14 share given to me as cash in
    2000 already which I don't know how to correct for in the cost basis
    above.

    How do we calculate the ROI for 7 years since buying 100 shares of HP
    at $54?
    How do we figure if it's a good deal or not to tender at the upcoming
    dutch auction?

    So very confused,
    Karin
     
    dvdpleasures, Nov 28, 2005
    #3
  4. dvdpleasures

    B. B. Guest

    The current Hewlett Packard / Compaq (HPQ) resulted from the spin off
    from the old (pre 2000) Hewlett Packard (HWP) and Agilent (A) so I
    believe the OP is correct in using HWP as the original sticker symbol
    as per HP's own web page FAQ current today at
    http://www.suite101.com/discussion.cfm/investing/4767/latest/719

    I ran the math through Quicken assuming you purchased 100 shares of
    HWP at $54 per share and you actually have a cost basis of around $75
    dollars for the HWP shares (now HPQ) and the cost basis for the
    Agilent shares (A) were 0 but may have changed over time due to the
    divident reinvestment schedule as shown at the HP FAQ at
    http://www.hp.com/hpinfo/investor/resources/faq/agilentfaq.html

    Main point is if you were to sell today, you would need to claim a
    capital loss of $75 -30 = $45 for the original HWP shares (now HPQ)
    and a capital gain of $35 - 0 = $35 for each of the Agilent shares.
    The 0.14 of a share can just be ignored as the IRS doesn't force you
    or the 1099's to report sectional shares (just like they let you drop
    the cents in the dollars columns).

    All this is discussed in complete detail in
    http://sec.edgar-online.com/2001/05/16/0000912057-01-516545/Section6.asp
     
    B. B., Nov 30, 2005
    #4
  5. Quoting from:
    Spinoff Math: Divvying Up Your Cost Basis in H-P and Agilent
    By Tracy Byrnes
    Senior Writer, The Street.com
    http://www.thestreet.com/funds/taxforum/964624.html

    "In this example, the basis in that 0.14 share that arrived in cash is
    $4.35 ($31.10 x 0.14 share). So you will owe tax on the difference
    between the cash you receive and $4.35.

    Since you pay tax on that fractional share, its basis is no longer part
    of your overall Agilent basis. You're left with 38 shares, each with a
    cost basis of $31.10, so your remaining Agilent basis is $1,181.80."

    HPQ basis after the spinoff is $4,214.00
    A basis after the spinoff is $1,180.80
    -----------
    Total: $5,394.80

    Value today (29-Nov-05):
    HPQ: $2,996.00 ($29.96 x 100)
    A: $1,354.70 ($35.65 x 38)
    ----------
    Tot: $4,350.70

    HPQ 7y ROI = -28.9%
    A 7y ROI = +14.7%
    ~~~~~~~~~~~~~~~~~~~~~~
    If you tender the A at $35, you would lose money vs. today's price;
    the 7y ROI would be +12.7%.
    If you tender at $37, the 7y ROI would be +19%

    (this assumes you didn't reinvest you HPQ dividends).

    Very simple. Do you think the stock will go down? If yes, then it's a
    good deal. Since Agilent is capping the auction at $37, they've pretty
    effectively set your maximum return for you.

    --Gene
     
    Gene S. Berkowitz, Nov 30, 2005
    #5
  6. wrote in @g43g2000cwa.googlegroups.com:
    You severly miscalcuated your cost basis, you twit.

    The Agilent shares you obtained should be subtracted from the HPQ giving
    you 62 shares of HPQ and 38 shares of A for the original cost basis of 54
    dollars for the HPQ and a cost basis of 0 dollars for the Agilent stock
    which you basically got for free from the HPQ spinoff of Agilent.

    As for the Modified Dutch Auction (MDA) currently underway, you'd be a fool
    to participate as the stock price will almost certainly go over 45 as soon
    as the auction concludes due to the pullback of the stock. It's only
    natural since the number of outstanding shares is reduced dramatically by
    the buyback.

    In fact, anyone who buys A today at 35 is basically printing money. Notice
    you don't see any directors of the company participating in the MDA. They
    are waiting for the stock to shoot up to 45 the day after the auction.

    This wait-and-dump tactic should be illegal but is perfectly legal.

    Patricia Kohler
     
    Patricia Kohler, Nov 30, 2005
    #6
  7. dvdpleasures

    SJF Guest

    This expectation of a rise to 45 is grossly wrong. The stock is repurchased
    by reducing cash reserves or increasing debt to finance the purchase. The
    net worth and net profit of the company are reduced while the number of
    shares of the stock are similarly reduced proportionately. The book value
    per share is essentially unchanged. Knowledgeable investors recognize this
    and the price for a stock will seldom change much as the result of a buy
    back.

    SJF
     
    SJF, Nov 30, 2005
    #7
  8. dvdpleasures

    SoCalMike Guest

    i wonder if theyd care about, say, half a share of BRK.A ?
     
    SoCalMike, Dec 1, 2005
    #8
  9. Ever notice the little "z" under shares traded in the stock listings
    there? Normally the number is share in the hundreds. For Berkshire
    Hathaway it is actual shares/ Yesterday it was 110
     
    George Grapman, Dec 1, 2005
    #9
  10. dvdpleasures

    phillysleuth Guest

    Where do you get your information that Agilent shares are essentially
    free as a result of the spin off from HP? Hp's web site and written
    material sent to hp holders specifically gives an allocation formula
    for assigning a cost basis, definitely not 0.

    jvs
     
    phillysleuth, Dec 1, 2005
    #10
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