I've been away and, thus, missed the opportunity to respond to your comments which, evidently, began with my message #82.
I think you've missed the point here. I'm not interested in defending “Floorless Converts,” in general, but rather the issue by ID Biomedical (“IDBEF”) and others in similar circumstance.
Your prognostication of a downward spiral is predicated on the presumption that the “floorless” holder will “go short.” I can't refute that possibility. However, I will point out that that option is available in the absence of the “floorless convert:”. Inasmuch as IDBEF's convert is fully redeemable by the company for cash at any time, it removes the possibility of “going short” without risk, except for the existence of the 300,000 warrants.
In this instance, the Institutional Investor can go short 300,000 shares and not be at risk; however, given the current stock price, I submit that the greater profit potential for this investor exists if the stock appreciates. Not only that, the Institution can avoid the ugly possibility of a buy-back induced short squeeze should they be tempted to exceed the 300,000 share "limit". {See message #59 on this board for the possible consequences.}
I'd also point out that this is not an issue that would be easy to “short” in size and, at its current price, not the most attractive "short prospect" in the universe.
Furthermore, it's hard to see how this issue benefits management, if, in fact, it is detrimental to the company, since they are among the largest shareholders.
Whether ID Biomedical succeeds or fails will not be determined by the particulars of this security issue, but, rather, by quality of the company's scientific work. Although this security has some inherent, potential disadvantages, on balance, they are outweighed by the potential benefits given the company's near-term prospects. |
