Buffett bailout of WorldCom raises questions of influence

alex at yuriev.com alex at yuriev.com
Fri Jul 12 14:58:32 UTC 2002


> > http://www.usatoday.com/money/columns/maney.htm
> 
> Where does it talk about a "Buffett bailout out WorldCom"? Buffett invested
> $100 million in Level 3 (the rest of the $500 million came from others).
> Hardly a bailout, and nothing to do with WorldCom. What am I missing?

The funny thing is:

(a) Buffer's insurance company is known for a great arbitrage abilitites.
    It never needed to publish its short positions, so there is no reason
    not to believe that it could have held LVLT common short. In that case
    you have a convertible arbitrage game that pays you 6x FED overnight 
    in the interest.

(b) As LVLT stock shot up 50% on the news and put convertible into the
    money, a holder of the convertible could immediately go and short the 
    common at the convertible ratio. Instant 50% in a single transaction,
    with the short position still paying 6x FED overnight.

(c) Finally, pay attention how WCOM bonds traded before, during and after
    news. As the WCOM scandal hits the press, the bonds drop to a nearly 
    default level (10c on a dollar). Buy $2B of WCOM bonds, which gives it
    20B of face value. Do the deal. Watch WCOME bonds rise 10%. Sell them.
    now go to (a) or (b).

> Anyone who fears a Microsoft entry into telecoms would do well to study its
> foray into cable investments.

Anyone making this statement would do well to realize that the loss that
MSFT experienced in cable is equivalent to that person spending a $10 for
lunch. While it could be an enormous expense for a bum on a street, it does
not mean anything for someone who makes $100k per year after taxes.

Alex




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