Gmo Case Study

CASE STUDY: Strategic Capital Management

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NOTES
SCM LLC 12.9.1998 – Elena raised $20 million for her new fund Interested in Ubid, recently had an IPO—lucrative Internet-sector investment? Mandate of generating 10% annual returns charge investors 2% management fee of assets under management an incentive fee equal to 20% of profits. Mandatory minimum investment horizon of 2 years

Ubid & Creative Computers creative computers – a catalog distributer of computers and computer peripherals
-opened retail markets in 1990s
-closed 7/8 of retail stores in 1998 b/c of constant pressures on profit margins in the computer industry
-started selling computer equip. on internet via auction format on Ubid website
-world-wide exposure
-$2.1 million 1st quarter sales **costs?
- 7.6.1998 sell 20% equity of Ubid in IPO/ distribute the remaining 80% of Ubid to shareholders of Creative computers in a tax-free spin-off six months after Ubid IPO

UBID IPO
12.3.1998 – 1.817 SHARES @ $15/share
-Ubid gains $25.4 million after $1.9 mil in underwriting fees
-12.4.1998- shares open at $38, traded above $60, and closed at $48
-based on total shares outstanding 9.15 mil, ubid closed 1st day with a market cap of $439 million
POST-IPO
UBID
3rd Q sales increased to $15.3 million – growth rate of 637% & 127% for 1st and 2nd qrters--- yet earnings remained negative pretax loss of $1.1 million at end of 3rd. with no prospects of positive earnings in the near future.
CREATIVE COMPUTERS
Record consolidated net sales of $186(170.7 excluding ubid) million in 3rd Q of ’98, a 51% increase from ’97 3rd Q(excluding Ubid, which if u did, would see 39% increase)
Net income improved, reaching $435,000 for the 3rd Quarter
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Without the investment in Ubid, the net income was $1.1 million, which would make this the most profitable quarter since 3rd quarter 1997.
INVESTMENT