What would you do?

[The Stock Boy]

Concerning the LU-ALA deal today. My girlfriend has 250 shares of Lucent in an online account called Sharebuilder. She has had these shares since February of 2002, and would like to know what will happen. She paid 5.30 a share for them, just before they went south (real bad timing).
She tried to get some advice from Sharebuilder (a real schlock outfit, if you ask me). They told her they were not in a position to offer any recommendations on individual issue, and that she should refer to the FAQ section on their site.
Frustrated, she called a local broker. This guy was a real piece of work, chastising her for screwing up like many do-it-yourselfers, and said if she was willing to open an account with him for a couple of grand, plus a transfer of all her rollover mutual funds and this Sharebuilder thing, he would help her out. What a real grape-bag he was.
Can anyone tell us, if she hangs on to the Lucent stock, will that automatically convert to the new company stock when the deal is done? I thought I read something along that line earlier today, regarding another company, but it was a little over my head.
Also, she is down about 45% from her original purchase. Will she be able to take that as a loss for taxes next year, after the conversion?
I realize that we need to talk to an accountant or someone, but thought I would just kind of float it out there for some feedback.

[df21084]

Stock Boy

Concerning the LU-ALA deal today. My girlfriend has 250 shares of Lucent in an online account called Sharebuilder. She has had these shares since February of 2002, and would like to know what will happen. She paid 5.30 a share for them, just before they went south (real bad timing)..

Okay ... I'll start.

Had your girlfriend sold LU yesterday, she would have missed out on a 8.5% gain today. That would be a shame.

So ... first thing ... don't do anything rash. Her total investment, sans commissions, is $1325. At the close today, it's worth $765. ALA could just save LU. Things could be worse.

She tried to get some advice from Sharebuilder (a real schlock outfit, if you ask me). They told her they were not in a position to offer any recommendations on individual issue, and that she should refer to the FAQ section on their site.

I used to use Sharebuilder. They're are on the up-and-up, but they're not going to give advice. I switched to Scottrade because the commissions were more affordable. I've since left Scottrade, and I'm now at Fidelity because all of my 401k and 403b monies are there. Commissions at Sharebuilder were just too high, at least for me.

Frustrated, she called a local broker. This guy was a real piece of work, chastising her for screwing up like many do-it-yourselfers, and said if she was willing to open an account with him for a couple of grand, plus a transfer of all her rollover mutual funds and this Sharebuilder thing, he would help her out. What a real grape-bag he was.

Yup. They're interested in themselves ... not you. That's not a bad thing, but you need to be aware of this plain and simple fact. They need to make a living too. One thing about brokers, whether you make money or lose money, they make money.

Can anyone tell us, if she hangs on to the Lucent stock, will that automatically convert to the new company stock when the deal is done? I thought I read something along that line earlier today, regarding another company, but it was a little over my head.

There's no deal yet. They're still in the talking stages. I think it would be a good thing if it happens though.

Also, she is down about 45% from her original purchase. Will she be able to take that as a loss for taxes next year, after the conversion?
I realize that we need to talk to an accountant or someone, but thought I would just kind of float it out there for some feedback.

I'm not a tax person, but she should be able to deduct the loss on her 1040. But, I don't think I'd sell.

There's lots of people on this HUGE site who will offer some really good advice. I'm certain their replies will be forthcoming.

And welcome to possibly the best site on the internet.

[The Stock Boy]

Thanks. We are planning on sitting tight for a while, to see how it plays out (jeeze, she's held it this long, what's the rush?).
We're leaning towards taking the shares in the new company, if the deal goes through.
We are still trying to figure out if she will be able to take a loss at the conversion.
Thank you very much for the insight.

[df21084]

Thanks. We are planning on sitting tight for a while, to see how it plays out (jeeze, she's held it this long, what's the rush?).
We're leaning towards taking the shares in the new company, if the deal goes through.
We are still trying to figure out if she will be able to take a loss at the conversion.
Thank you very much for the insight.

Well ... if the total cost to purchase the LU is more than the proceeds from the sale of either LU or ALA, then it's a loss.

LU has nothing going for it, in my opinion. If you don't think a merger is going to happen, then I'd think about getting out. Otherwise, look at the performance of the other company and see if it's something she's interested in owning. There's other fish in the sea.

BTW ... why did she buy Lucent in the first place? Is / was she an employee? Did someone recommend it? What does the company have going for it that makes her want to own it?

LU's up about 2.3% today, as of this post. I think the price increase is simply due to speculation that LU's going to be acquired. If that doesn't happen, then I think LU's going to sink like a stone.

Hopefully someone else will chime in.

[New-born baby]

Well ... if the total cost to purchase the LU is more than the proceeds from the sale of either LU or ALA, then it's a loss.

LU has nothing going for it, in my opinion. If you don't think a merger is going to happen, then I'd think about getting out. Otherwise, look at the performance of the other company and see if it's something she's interested in owning. There's other fish in the sea.

BTW ... why did she buy Lucent in the first place? Is / was she an employee? Did someone recommend it? What does the company have going for it that makes her want to own it?

LU's up about 2.3% today, as of this post. I think the price increase is simply due to speculation that LU's going to be acquired. If that doesn't happen, then I think LU's going to sink like a stone.

Hopefully someone else will chime in.

If the merger doesn't happen, LU goes lower than it was before the talks started last week.

[df21084]

I agree NBB

If the merger doesn't happen, LU goes lower than it was before the talks started last week.

The 10% jump in LU can only be attributed to the takeover speculation. And it's just that - speculation.

CNBC talked about this merger this morning, and it sounded like that thought LU shareholders were going to get shafted again. Maybe that's because LU should have merged when they were worth about $5 billion more than they are now. I see lots of lost LU jobs if the merger happens.

Alcatel's 5 year performance has been dismal. An S&P 500 index fund would have run circles around either of these 2 stocks. The more I look at LU/ALA, the more it stinks on ice.

[New-born baby]

I'd leave now

As a friend, I'd tell you to jump ship now. Put the money in something going higher.

[The Stock Boy]

BTW ... why did she buy Lucent in the first place? Is / was she an employee? Did someone recommend it? What does the company have going for it that makes her want to own it?


.

It's the only stock she owns (other than her funds in the 401k). The stock, with an original cost of $5.45, was given to her as a birthday/graduation present by her grandfather back in February of 2002. Her grandfather, who has sinced passed on, was retired after 46 years at Bell Lab's (where Lucent came from). So, she had not sold, or even given the stock a second thought, until the Alcatel deal came up last week.
She just bought a town house, and now has a deduction for her mortgage interest, so she was trying to figure out if she should just sell, take the loss for taxes, or hang on for a potential merger.
This is not a great deal of money here, her shares are now worth about $775. with a $587 loss over the past 4 years.
Thanks again for everyones input.

[Adman]

I do not see any real value to either company. You are only talking about a small amount of money in the big picture, so either way will work out for you.
If you can really use a deduction on next year’s taxes, sell for the loss and move on.
I am not 100% sure, and will check on it for you, but I believe if you hold out, there is a merger, and you (your girlfriend) receive the stock replacement, at that point, you receive a stepped up cost basis of the new shares, negating any losses from LU.
Of course, I am not a financial advisor, and they would be the ones that could tell you straight, or a tax advisor. Alas, NASD rules strictly prohibit registered reps from posting on sites like this. Make a blind call to the H&R Block 800 number or the IRS 800 number. Both will be able to provide you with some fairly solid and free, guidance.
Good luck, and post what you find out. The rules for institutional account are very different from individual accounts, and I am curious as well.

[dakat69]

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B58C3989C%2DC9E4%2D4316%2DADBA%2D055897EF3A38%7D&dist=newsfinder&siteid=mktw

[Adman]

As I stated, I see no redemption in either firm. Look at it this way: Your girl will end up with about 12 shares of the new firm, almost equal in value to what it’s worth now. (LU, that is, all things being equal, at close).
This is a rub: One report values LU at 2.84, and another values the deal for LU shareholders at 3.01. Both numbers suck! Too far below the 52 week high of 3.49. (I told you there were reasons I watched the 52-week hi/low mark.) This cannot be a merger of equals with a gap of $10b in market cap.
Now, here is my take: Patty Russo will be heading up the new NA unit; once the board ousts her, sometime first quarter “07, the stock will take off.
Tell your girl to hang on for now. What’s the rush to unload? She has held this long; another 9 months won’t ruin her, and that option now, shows the best hope for a return in her cost basis.
This is just my opinion. Do the research, crunch the numbers. Sit down and find out what she will be happy with.

[spikefader]

I'd be hanging onto those LU shares dude. Sentimental reasons would be a big one for me. The tax benefit is not worth throwing the chance for recovery in the stock.

Looking at the chart, that vol gap up is actin' real bullish band-wise and if it manages a weekly close over 4.00 this year, it's got a very real chance to run long-term (perhaps very long-term) for a miraculous 78.57 gap fill in the years ahead. You've waited this long, so I'd give it the chance to stay over 2.76 and turn into a monster stock with a monster recovery. Wouldn't be the first time.

But if 2.76 fails to hold, dump it and run. Good luck.

Regards,
Spike.