but my point is that variable-priced discounted toxic equity financings such as this one, set the stage to *enable* or *amplify* a death spiral.
You are correct on both points. My comment is meant to show that there is money to be made by jumping in and supporting a stock in a toxic deal until after the end of the deadline. You don't have to believe in the company to make money arbitrating like that, and I pressume that is what kept Corel from falling precipitously today.
This is Day 3 of the Cannacord pricing period. The stock has not been torn limb from limb, but it has seen pretty heavy volume and pretty heavy selling pressure over the previous two days. Today seems more moderate, let's see what happens at the close...
Exactly as predicted. Immediate dilution following the announcement of the deal. Dilution matches price of two days before minus dilution percentage (I did the math).
Why 15%? Why do you say the deal is dilutive? Perhaps it is accretive to per-share book value?
Not in this case as the infusion of cash will be spent in payroll over the next few months. This is not accretive.
What is the stabilizing mechanism?
Buy the stock to support the price.
What stabilizing mechanism is there, and how would it happen?
Here's the play by play:
1. The stock enters a "donward spiral" during intraday trading through the amplifying mechanism.
2. Buy small amounts during the day, then push the price up at closing time by buying large amounts of shares.
3. Repeat for four days (the time specified in the toxic deal).
4. At the end of the fourth day, your entry point for each share was below the average of closing price for four days. In other words your entry price was below actual dilution, so you can sell the stock and make money.
5. Lathe, rinse, repeat. |
