Aus, you asked,
"What are the advantages/disadvantages of doing this type of offering [debentures] with the current stock price?
What is the logic behind this?"
There isn't any from the standpoint of SanDisk stockholders, but the purchasers of the debentures will do all right because they will be getting the equivalent of a 4.5% "dividend" on their "potential common stock" while waiting for the price to appreciate. Meanwhile, they are exposed to less risk than you and I. In effect, they have a 5-year dividend-paying call that is very close to being in-the-money.
I have no problem with the concept of convertible debentures, but on this one I smell a rat. Why was the conversion price set so close to the market price of the stock?. One might suspect that individuals in SanDisk management are positioned to benefit from the issuance.
What does this mean to you and me? It means that there will be *6,786,000 new shares of SNDK issued as a result of this offering, which is approximately a 10% dilution of the stock.
Other things have happened in the past that have raised my eyebrows. I remember when the SNDK stock was $16 (pre-split), and two glowing press releases came from SanDisk. The price shot up to $19 in one day, only to retreat a day later when an earnings warning was released. One of the contributors to SI purchased at $19 only to see the price rapidly go down to $6 or $7.
The purchase by SanDisk of the company that was working on storing 20 bits of information per cell.... how is that progressing? Did SanDisk purchase the company because it felt that 20 bits per cell held promise?
All in all I think there is a credibility problem here. I sincerely hope I am wrong.
Regards,
NHP
* This figure might actually be low because the most recent announcement states that $125M in debentures were bought, with an option to buy another $25M within the next 30 days. |
