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Technology Stocks : NHC COMMUNICATIONS (TSE:NHC) acquiring THE FIBER COMPANY
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To: Lalit Jain who wrote (761)7/27/2001 7:49:21 PM
From: DaveAu  Read Replies (2) of 856
 
I'm not trying to bash here (I still have the same small long position I've had since before the big run up) but I've seen a lot of these deals and this is how they work. Although the PR doesn't mention it, the price Roseworth will pay is at a discount to the market price, normally calculated daily thru the draw down period. The discount will likely be in the 8 to 20% range. The prospectus isn't on Sedar yet but when it is we can confirm the details. The company will inform Roseworth at the start of the draw period how much cash they want to raise. Roseworth can then short the shares almost risk free and cover with the shares received from the drawdown to pocket the discount. In a thin market like we have right now, this will cause the stock price to bleed regardless of how cheap it may appear. There may even be a clause that says Roseworth isn't allowed to short but this is meaningless since they can always short through a related company.

A company is much better off doing a regular one time private placement for a big chunk of cash even at a discount because then existing shareholders know that the pp investor has done some DD and is satisfied with the current price. In such a case the pp investor is taking on some risk since they would be unable to dump it all on the market without driving the share price down.

Dave
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