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Strategies & Market Trends : Shorting stocks: The root thread
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To: George McMeen who wrote (20)6/17/1997 10:39:00 AM
From: Q.   of 41
 
George, re. a stock buyback right after issuing convertibles, this isn't as crazy as what KKRO did. Thermo's converts are the normal sort of convertible debt. The net effect, of selling convertible debt to buy back shares and then, years later perhaps, letting the converts flip back into common at a fixed conversion price, is to reduce the shares outstanding temporarily by paying a little interest. It is the part about paying interest that makes the least sense, since $50 M of the proceeds (of selling the debentures) are to be used for working capital (i.e., paying interest etc.)

KKRO's converts were the kind that flip into common at a discount to the market price. KKRO then announced a stock buyback. That is incredibly stupid, as it would mean selling stocks at a discount then using the proceeds to buy them back right away at full price. There is no way KKRO will really do this -- the announcement was surely just a PR ploy to get the stock to go up, with no intention whatever of actually doing the buyback.
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