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Strategic Capital Management, Llc (a)

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9-202-024 REV: APRIL 8, 2002 MARK MITCHELL TODD PULVINO ERIK STAFFORD Strategic Capital Management, LLC (A) On December 9, 1998, Elena King contemplated her first investment as a hedge fund manager. In only a few months, Elena had raised $20 million for her new fund, Strategic Capital Management, and was looking forward to putting the money to work. Based on recent comments by high-profile analysts such as Henry Blodgett of Merrill Lynch and Mary Meeker of Morgan Stanley, Elena thought that the Internet sector provided excellent prospects for lucrative investments. She was specifically interested in a recent initial public offering (IPO) by Ubid, an Internet auction firm. Strategic Capital Management, LLC Elena became …show more content…

202-024 Strategic Capital Management, LLC (A) the world could view and bid on computers, peripheral equipment, and other consumer electronics. The Ubid subsidiary proved to be very successful, generating $2.1 million in sales in its first quarter of operation. Management projected that sales in the Internet auction subsidiary would continue to grow at a rapid rate. Based on the high market prices of other Internet retailers, Creative Computers’ managers did not believe that its stock price accurately reflected the potential of its Internet business. To raise the market’s awareness of the Internet portion of their business, Creative Computers decided to carve-out the Internet subsidiary. On July 6, 1998, they announced their plans to sell approximately 20% of Ubid's equity in an initial public offering. Subject to a favorable tax ruling by the Internal Revenue Service, they planned to distribute the remaining 80% of Ubid to the shareholders of Creative Computers in a tax-free spin-off six months after the Ubid IPO. The Ubid IPO took place after the close of trading on December 3, 1998. Ubid sold 1.817 million shares for $15 per share. This was the top of the expected range of $14 to $15 set by Merrill Lynch & Co., the lead underwriter of the equity carve-out. Ubid received proceeds of $25.4 million, after subtracting $1.9 million in underwriting fees. On the first day (December 4, 1998) that Ubid was publicly traded, its shares opened at

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