Strategic Capital Management LLC (A) Harvard Case Solution & Analysis

Strategic Capital Management, LLC, a hedge fund, which plans to make investments in the creative Computers Ubid. Creative Computers recently sold 20% of its online auction subsidiary Ubid, the public at $ 15 per share. Ubid stock price closed the first day of trading at $ 48, giving Ubid $ 439 million market capitalization. Paradoxically, the stock price of the parent company does not keep pace with its subsidiary. At the end of the first day Ubid as a public company, the cost of equity Creative Computing "was less than the value of its share in Ubid. Market Price implies that no-Ubid Creative Computers assets had a value of negative $ 79 million. Relative prices, and the relationship between ownership Creative Computers Ubid suggest a potential arbitrage opportunities. To evaluate how best to use this opportunity to invest, Helen King, hedge fund manager should understand the risk and expected return of the different long and short positions of justice. "Hide
by Eric Stafford, Mark Mitchell, Todd Pulvino Source: Harvard Business School 3 pages. Publication Date: August 13, 2001. Prod. #: 202024-PDF-ENG

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