Wily - You make a fair point on the reduction in volume from 20 MM to 10MM in Fred's most recent first year projection - maybe it is realism, maybe Fred is being more conservative, maybe it is derived from the general diminution in market volumes over the past few months (according to Dr. Hed, the NYSE daily volume is 30% or more lower than it was several months ago -- and VWAP trading is a function of the market volume as a whole). It's not atypical for corporate executives to recalibrate their projections over time - but it's certainly fair to point out that the projection has been cut in half. As you point out, the market does not yet seem to have punished the stock for the lowered projection, but punishment (or reward) will probably have to wait until actual results are in (appropriately enough).
On the Rose Glen "risk" issue - clearly, the convertible preferred stock issued in the private placement is less risky than common stock - but it is by no means without risk. It enjoys a liquidation preference and conversion rights. But it has more risk than secured debt even if it is less risky than common (in a doomsday scenario, if the company tanks before Rose Glen converts and sells its common, its liquidation preference will be worthless). Also, there are no interest payments or other effects on cash flow -- indeed, the point is to allow the company to incur significant capital expenses without affecting cash flow. It is a net positive to the balance sheet, and involves no intrusive lender covenants, no "maturity dates", no risk of insolvency by exercise of lender remedies, etc. Which makes convertible equity the "financing" of choice for a development stage company if the conversion rights are not too expensive -- in this case they are market driven at a pretty good time in Ashton's life cycle. If the company does well, it has little impact. If the company does poorly, the extra dilution will not be as meaningful as the poor performance of the company itself. Not perfect, but raising capital rarely is.
So weigh the negatives and positives and decide if another 6-10% of dilution is more important than the $20 MM is (for accelerating the roll out of ATG's family of trading systems). In the long haul, I think this is a huge home run for the company -- it will be meaningless from a dilution perspective and very positive from a value creation perspective. But I am not suggesting that my view is the only fair view, or that there is not fair debate to be had on its merits.
MST |
