Kevin and Keith: In order to clarify for some of the lurkers and others, I thought I would elaborate on the case of UBS and their private placement, as opposed to large block trades of stock. If I were interested in buying stock in UBS, I would not be buying this stock until at least a month has passed after the private placement. It is a "necessary evil" for speculative companies, but I would be extremely wary of purchasing the stock for some time. In my observations, I have seen many posts on SI declare that these type of private placements create a buying opportunity for regular investors. It usually doesn't in the short term, as I have seen many stocks dumped after such a placement to settle at a price 10-15% below the PP, at least temporarily . Many are left wondering why, and the simple answer is dilution. The issue in this matter is not only the 4 million units, but also the 1/2 share warrants that would likely further dilute around 2 million more units. Most "experienced" investors will sell their stock after the PP, knowing that it is likely they will get it for cheaper at a later time. What I have observed is that the stock will rise slightly above the PP price somewhat, and then drop below the placement price. I have often factored in the added dilution at the price of the PP, and can reasonably calculate where the price will settle in the short term [example: 25 million shares of company ABC, add the 4 million shares PP at 20 cents (for example) + 1/2 share warrants (2 million shares) makes 31 million. 25 million divided by 31 million means the company is now worth about 80% of what it was before the PP, and should reduce the price of the shares by 20% to around 16 cents]. Of course, special situations occur where the price may go up because of intense speculation, but these are the exception rather than the rule.
As far as block trades go, my understanding is that there is no dilution, as these shares are already owned and moved from one large buyer to another. I often follow these trades and they can be a very valuable extra tool for the investor. The jury is still out on these occurrences, because as Keith has indicated, it can go either way. The case of BSX was a dump by a fund (I believe), in which many "blocks" were sold to the market by one house, causing a decrease in the price, without necessarily indicating that the fundamentals of the company had changed. This would normally mean that the company no longer fit the fund's investing objectives and was unloaded on to the market, although it can also mean large margin calls, etc... I made some money last year on REPAP because of these occurrences. I noticed in January 1998 and some time before that, that incredibly huge blocks in the 10 million share range where being crossed, sometimes 3 or 4 a day. Volume was enormous, and I bought in for a quick double, and in hindsight, it would have been a triple. These scenarios are good for the "quick buy and sell" and can make you a lot of money.
Regards, Wisam |
