miheldo, first, IRF got a very good deal on their converts. They only pay 4.25% interest and the convertibles can be converted to common at a nice premium to the current price. So they raised money under quite favorable terms.
However, as Zeev suggests, the financing could place a lid on the stock for a while. That's because the holders of the convertibles can lock in profits by shorting against their convertibles. (Of course, the stock price has to be above the conversion price-$74-for to earn them a profit). By doing this, they take their money plus a profit off the table, but because they still hold the convertibles, they continue to earn the 4.25% interest rate. So they can earn interst without having money invested, a nice deal for them.
Zeev suggests the convertible holders might start to take their money off the table at about $90. At that price, they would lock in a nice gain against the $74 conversion price. Makes sense to me. Of course if the convertible holders want to get an average price of $90 (and with $450 million they need to get off the table), the price is going to need to rise above $90 on some pretty substantial volume.
Bottom line, I am looking to sell IRF around $95. Which would be more than a double from where I first mentioned it on this thread at $40, and still a nice 50+% gain from here. I think its possible that we might get this price before Zeev's turnips scare the market into a downturn late in the year. |
