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Chat-Room Investors Still Have Hopes for Iridium, So Why Do the Bears Call Them Iridiots?
By Jacqueline Doherty
If the markets are supposed to be efficient, then why are shares of Iridium World Communications still trading north of $3? The satellite company is mired in bankruptcy. It has more than $4 billion of debt and its junior bonds are trading around $5.
Oh, and by the way, Thursday after the market's close, the company came out and practically said its shares are worth bupkes. In a press release Iridium wrote that recent trading in the stock "does not reflect the reality of its financial situation." And, it went on to add, "it is highly unlikely that reorganization will result in value remaining from the bankruptcy estate for holders of publicly traded equity."
We know there's a bit of legalese thrown in there. But that's probably the clearest signal you're ever going to get from a company that its stock is worth nothing.
Back in April, we pointed out that the bonds and stock were trading in different orbits. At the time, the company hadn't defaulted on its debt, but its bonds were changing hands at 50 and its stock was still around 14. Even in July, when the company announced that it would not make its interest payment, the bonds fell to about 18 and the stock fell to only 6.
Since then the company has filed for bankruptcy and it teeters between getting an equity infusion that may keep it operating or being forced to liquidate. Yet the stock traded as high as 5 1/8 Friday and ended around 3 1/2 in the pink sheets. So why is it trading so high? In part, because some investors are buying the shares to cover short positions. Indeed, most stocks of bankrupt companies never fall absolutely to zero. They usually trade at a few cents on the dollar. But that's still no excuse for Iridium's stock to trade so high.
A more likely reason can probably be found in the Internet chat rooms. There are still a handful of investors who just don't get it. They remain hopeful that if Motorola or Craig McCaw put new cash into the company, they'd leave Iridium's debt and equity outstanding. They don't seem to understand that McCaw wouldn't touch the company without wiping out as much debt, and therefore equity, as possible.
But in the world of chat, not everyone sees things this way, particularly the hard-core "Iridiots," as they are called by the chat-room bears.
One of our favorites came Friday from someone signed in as "UnabashedlyPositive" on Yahoo's chat pages: "Absolutely nuts, but I am still in. Last night when I saw the [press release] I had an incredible anxiety rush, but decided that the time for that had passed and I was going to remain committed. I could get out here with half of my position and lose a little, but for some reason I'm still encouraged by the price in the face of the announcement."
Conspiracy theories also run rampant. One chatterer wondered whether the creditors' lawyers could have influenced the wording of the press release. On Thursday, another questioned whether the U.S. government would bail out Iridium, the same way it helped Lockheed or Chrysler. Supporters couldn't seem to believe Motorola would leave Iridium shareholders in the lurch. The best theory had Iridium saying that its stock was "worthless" for its own legal protection. "Note that they talked about the $4 billion in debt. What about the assets?" questions one ever-hopeful person.
And then there is the momentum crowd. "For me and my trader friends, we don't care about the company, tech, results, but only the wave," one message said. "There is enough wave to make money . . . (we) don't make conclusions. It's not our job."
Welcome to the world of investing at the turn of the century. Colorful, but not necessarily rational.
Barron's was the source.
Jack |
