Flightless, you have done an excellent job of describing the deal with one error. In your example of the value of a $20 stock price, your $54 estimate should be more like $71.5 for the following reasons:
If the stock is at $20, then of course the Common in the Unit would be worth $20 (Not $15) The same for the Convertible Preferred. It would also be worth more like $21 (Convert feature plus about a dollar premium for the dividend.) If you ran the warrants through a Black Sholes Model, with lets say four years left. The $8 warrant would be worth about 13.5, the $12 would be worth about 10.5 and the $16 would be worth about 6.5. If you add these all together, you would have a value of the right that is priced at a fixed $5 of about $71.5.
Of course that is with no short position. The premiums in the derivatives start increasing dramatically depending on the size of the short. The top four shareholders of the Company (Smith Family-5,150,00; Moody 400,000; Nutstoo 2,000,000 and Kennedy Capital 420,000) now have right at 7,970,000 of the 8,360,000 shares, so that means they own 797,000 of the 836,000 rights or, when broken up, they will own the same amount of each of the derivatives. Somewhat hard to believe that there is only some 39,000 left on the real float for all the rest of the shareholders combined. Seems that there is going to be a very large short in the rights and or the derivatives, with a very small real float to cover in. |
