Phil,
I agree with most of your post but disagree with your take on the price of the common being dampened by the warrant call. Here's something I posted on Yahoo in response to another poster; you see, I believe AMEN is about to move significantly before the final day of redemption.
Ok, my take on arbitrage is on a dual track; one for M&A activity and the other for warrants. On
warrants, in most cases, the warrant tracks closely the behavior of the common, especially during a
period when the wrrants have been called. e.g you probably could not find a better example than
AMEN: the warrants at 5 bucks and the common at 10.65 or so mirrors the value of both almost to
perfection which would be 10.75....not bad.
Now an arbitrageur coming in with train loads of $$$ will try to take advantage of even a slight
imbalance in value but only when the common is tracking better than the warrant which is not the case
in this case. For wxample if the common was 11.25 all he would have to do is buy a million warrants (
10K of which is mine and I'm not selling....) at 5m bucks, spend another 5.75m to convert ( are you
with me? he now has 1m shares of AMEN which he paid a total of 10.75 million bucks ) and then sell
the common for a reasonably quick and tidy profit of 500K. Neat, huh....
Well here's the thing.....alot of folks bought the warrant at much, much higher prices than 5
bucks...folks bought in as much as $27! though I think most were bought in the hi single digits thru the
mid teens. Forget, for a minute, the +'s or minus's of AMEN as a company ( potential, valuation blah
blah )but rather this very special point in time for its warrant strategy which, I think, got a bit
discombobulated. IMO, the price action for both the W and the common caught everyone by surprise.
The way W's usually play out is rather stodgy and predictable...this was everything but. Whats
happened is that there are now alot of folks sitting with paper losses who, I think, are probably loathe
(again, forget the prospects of AMEN --which I believe are golden one way or another--and focus in
on investor/street psychology ) to fork over another 5.75 for an item they already think they've been
burned on. Not gonna happen---and not good for AMEN who would love for everyone to convert.
More conversion, more cash onto the coffers.
Even for folks who bought the warrants at 4,5, and 6 bucks are judging whether they want, let alone
have the cash, to convert their warrants......
..........but ahhhh....what if the common starts moving again.....ESPECIALLY at a time when the
warrants are IN THE MONEY as they are now....IMO, every body and their Uncle ( including Uncle
Arby :-) ) will be converting and if they have no warrants to convert with, well what then???
Interesting.....
Hope it helps to illuminate and not confuse and, of course, all imho.
L |
