George,
<<What are your best guesses to account for the long, short, and rates of conversion if Tailwind is actually long? That model could include mixed positions (partially hedged to no hedge at all).
What are the odds that some of these guys are really taking a gamble (naked positions) versus the hedged positions?>>
I would feel quite a bit more comfortable making a guess if we had more data, or if I were better at interpreting data. What I would like to see is a time series of P(t), L(t), and S(t), where P is the preferred shares held, L is the common shares they own, and S is the short position held by the preferred shareholders. The smaller the time intervals the better, but 1 week would be great.
We know P every couple of months, we know S once a month, but we don't know L at all. I don't think we should know L; I think all investors deserve some privacy. None of us has our common ownership disclosed by Ancor or a third party and neither should Tail Wind or the Citadel Entities.
I wonder how frequently Ancor should disclose the remaining preferred position. Why not weekly? If we knew this information on a weekly basis we could go a long way toward figuring out what was happening. Are they converting, holding, then selling; or selling and then converting? If the short position increased at the same rate as the conversions we would probably conclude that they were shorting against the box, but if the short position increased without commensurate conversions we might conclude that an end game was in progress.
So, what do we know?
- Shares outstanding were 19.7M as of 10/28/98
- Preferred shares remaining were 700 as of 10/28/98
- Short position was 2.3M shares as of 10/15/98
- Shares outstanding were 13.9M as of 8/26/98
- Preferred shares remaining were 1279 as of 8/26/98
- Short position was 1.4M shares as of 8/15/98
- Shares outstanding were 12.1M as of 7/29/98
- Preferred shares remaining were ? as of 7/29/98
- Short position was 0.9M shares as of 7/15/98
- Shares outstanding were 12.0M as of 6/30/98
- Preferred shares remaining were 1515 as of 6/30/98
- Short position was 0.7M shares as of 6/15/98
From 6/30/98 to 10/28/98 the common outstanding increased by 7.7M shares, but the short position increased by only 1.6M in a similar 4 month period. Obviously not all converted shares have been shorted. Holding shorts for the sake of holding shorts does not seem productive, however selling now and converting later seems attractive so long as selling price is significantly higher than the conversion price.
The preferred shareholders know what their conversion price will be 3 weeks from now. Selling the end of September and converting after the 15th of October would make perfect sense. We have not seen much selling volume this month so I would not be surprised to see the short position decrease on the next report. This assumes that there is no heavy selling between now and the 15th.
It seems likely to me that the preferred shareholders have recovered their initial investment by now. Those who wish to use their capital elsewhere will dispose of their preferred shares sooner rather than later. Others might be willing to let some common stock ride for a potential 10 bagger.
I do not think that the preferred shareholders are a major force on the price of the stock, only a minor. The major force is Ancor performance or lack of performance. The preferred shareholders did not drive the price from $6 in May to $1 in October. I'm sure they added oxygen to the fire, but it was not their sheer selling power that did it. Similarly, I do not think that they can overcome a couple major announcements in the next two months and drive the stock back into the low $1s.
There is nothing that would dissuade them from holding some preferred stock for another year or two. If the price jumps into the teens or 20s a year from now they will clean up again. The maximum conversion price is capped at $11 or under. They don't have to convert until February, 2001.
I'm guessing the strategy is sell short into rallies, convert to cover shorts as necessary, and three months from now end up with only a few preferred shares and their desired stash of common stock. I'm voting for a possible bumpy ride for the next few months until there is a string of positive news, but no heavy turbulence. I've been wrong before and this is all conjecture on my part.
Greg |
