One way the preferred shareholders can liquidate their shares at a
profit is to wait until there is a jump in price, and then sell shares
on that day before converting. By selling first, they lock in a
desired selling price and they always know their current conversion
price. There are some days where this strategy would be very
appealing, and other days where it would make no sense.
I decided to run the numbers for the last five weeks, and looked at
the return on selling 1 preferred share's worth of common stock at the
closing price of each day. The conversion also took place that day at
the price specified by the formula for each Series. This formula
includes the effect of accretion.
You will see in the table below that for the 14 trading days
commencing 9/15/98, each Series C share processed had a 50% or better
annualized return. Two of the days had better than a 200% return.
Who'd have guessed that these were also high volume days?
It appears that Series B shares must be held after conversion to make
much of a return, however, Series C shares can attain an extremely
high return without incurring market risk. It also appears the Series
C holders drove a very hard bargain.
Please feel free to double-check my calculations and point out any
errors you might find.
(I'm having trouble getting all of the column headings to line up.
The headings are Date, Closing Price, Series B Conversion Price,
Common Shares per B Share, Annual Return, Series C Conversion Price,
Common Shares per C Share, Annual Return.)
10/6/98 1.31 1.33 8081 4% 1.11 9422 40%
10/5/98 1.31 1.45 7429 -2% 1.11 9420 40%
10/2/98 1.38 1.58 6826 -4% 1.10 9503 54%
10/1/98 1.50 1.57 6848 2% 1.08 9684 84%
9/30/98 1.72 1.52 7087 14% 1.05 9970 141%
9/29/98 1.94 1.43 7506 28% 1.05 9967 195%
9/28/98 2.00 1.36 7915 35% 1.03 10167 223%
9/25/98 2.13 1.27 8475 47% 1.03 10160 263%
9/24/98 1.47 1.29 8369 15% 1.03 10158 96%
9/26/98 1.41 1.33 8068 9% 1.03 10156 83%
9/22/98 1.44 1.30 8264 12% 1.03 10154 90%
9/21/98 1.56 1.23 8726 23% 1.03 10152 120%
9/18/98 1.59 1.15 9326 30% 1.03 10145 130%
9/17/98 1.56 1.07 10067 35% 1.03 10143 123%
9/16/98 1.69 0.98 10995 51% 1.03 10141 156%
9/15/98 1.25 0.97 11115 25% 1.03 10139 52%
9/14/98 1.16 0.96 11175 19% 1.03 10137 32%
9/11/98 1.13 0.95 11295 18% 1.03 10131 26%
9/10/98 1.06 0.95 11357 14% 1.03 10128 14%
9/9/98 1.16 0.96 11168 19% 1.03 10126 33%
9/8/98 1.19 0.93 11549 24% 1.03 10124 40%
9/4/98 1.13 0.94 11413 19% 1.03 10116 27%
9/3/98 1.06 0.97 11098 12% 1.07 9721 6%
9/2/98 1.03 1.00 10685 7% 1.14 9184 -10%
9/1/98 1.25 1.00 10684 22% 1.14 9182 30%
Greg |
