Hi, JOEBT1,
I, also, wondered about whether Farallon would consent to eating the 1.5 to 2 points of time premium, rather than to box the position and wait it out. On reflection, I decided that Henry is probably right: Farallon is getting out and leaving the premium on the table.
Here is my reasoning: There are two choices: (1) take approximately $5.25 per warrant, right now, and run, or (2) short an equal number of LGND, and lock-up $7.125 in approximately 2.4 years, as you suggested. Running the numbers, case (2) works out to an annual rate of return of less than 14%, even if the carrying costs of the short position were zero (an unlikely assumption.) In any event, I suspect that this is an unacceptably low target rate of return for a hedge fund (25% would be my guess for their threshold of acceptability.)
One way or the other, we do not have long to wait to learn the truth: by this date, February, we should see the new short interest numbers, as well as Farallon's SEC filings, assuming that a substantive change really has occured in its position.
Good luck,
RB |
