| Becasue short sellers must cover sometime, the new numbers (2.1M shares short as of 8/15) are very bullish. Meanwhile, I'm almost certain that MC stopped shorting our stock when it fell below 15. Briefly, MC is in the business of supplying venture capital, rather than stock trading. True, as we saw with LOAX, it often shorts the stocks of the companies to which it gives money. But VCs like MC rarely go short (or long) unless they have a "bankers'" guarantee in place. The absence of a floor in the LOAX deal provided precisely that sort of guarantee. Instead of a floor, there was a "floating" conversion price that amounted to 90% of the average of the last bids on 3 consecutive trading days during certain pricing periods. Hence, no matter how low it drove LOAX stock with short selling, it was assured of being able to cover with at least a 10% profit by converting it's preferred stock into common at a 10% discount. Because our deal has a floor of $15 (120% of 12 1/2), shorting the stock below that price involves a risk of losing money that VCs are loathe to take. For example, if MC had shorted our stock at 8, and it later rose above 15 it would lose 7 points per share regardless of what happened during the next 2 years unless, of course, the stock slipped under 8 and it covered using cash. True, if the stock went to 100 on June 30, 2002, MC would have a paper profit of 85 points on the common acquired via conversion at 15. Nevertheless, that paper profit would be lessened by the 7 point loss it incurred by shorting the stock at 8. To put this differently, VCs like MC rarely gamble. Instead, they usually bet only on sure things like getting the stock of a new company for a fraction of it's IPO price. BJ |
