Folks,
Hello. Been trying to figure out this rights offering and what it all means in the big scheme of things. I have lived through (barely) a warrant call and that is not something I care to relive so I thought I should think about this deal a bit.....I believe this is substantially different than a warrant call so I am not going to be overly concerned about the consequences of the rights offering.
Please feel free to offer suggestions and thoughts or to flat out correct my misunderstandings. Go ahead and dish it out....I can take it...I think.
This is all done without a complete analysis of the prospectus or other detailed reserach and is more a hopefully logical summation of what I see going on.
It appears to me the company needs cash for whatever reason....expansion, pay down debt, fill up the coffers, whatever. A easy way to get cash is a rights offering....especially with VEBA 1 and 2 backing you. VEBA 1 & 2 being the largest stockholders apparently did not want the dilution of the rights offering so they did a private placment for half the funds needed and a rights offering for the other half. The VEBA also did not want to buy the whole deal or we never would have seen the rights offering.
VEBA has a large stake in the company and wants its investment to do well, so they also provide that they will purchase up any shares from rights that go unexercised. This ensures a set amount of cash for the company.
I saw speculation somewhere that the big boys who are getting rights wanted low cost shares so they drove the stock price down in order to achieve a low price on the rights deal. I have a hard time believing this since my assumption is the company needed a certain amount of funds. If they needed the funds, what difference does the Rts price make, as the percentage could change for .715 per share to .5 per share or whatever. That the percentage could change is an assumption on my part.
So now we have the rights. They will be tradable under the symbol WFRRT until April 13, 1999, just a few short days from now. Will they be deposited in our accounts prior to the expiration? How will this be handled by on-line brokers? How many WFR shares are in IRA's where there is no money to pay up and use the rights? How many are fully invested in WFR percentage wise to their portfolio that they don't want the rights? I suspect and hope I am wrong that anyone wishing to dump their rights, won't get much for them. VEBA doesn't want them. They have a free pass to "exercise" your rights if you don't. They don't need to own them.
That being said, if VEBA wants the rest of the stock, and I presume they did not earlier, there will be no incentive to get the price up so people exercise their rights. If VEBA does not want the extra stock their intention would be to mark the price up so people will exercise their options.
I have no idea what will happen with all of this, but I don't expect a great deal of activity until after 4/13 in terms of stock price. I think most will be lucky to receive anything for their rights and suspect the supply will outweigh the demand.
After 4/13 I suspect the price will start to head north again. This is a company that will have a full compliment of cash to improve itself and fix its balance sheet.
The rights offering basically put a large amount of shares into the hands of VEBA 1 & 2 at an attractive price without having to purchase on the open market and drive the price higher. It also adds fuel to the company in the form of cash.
Of course with the cash, it does make a takeover more attractive, but with the amount VEBA holds in the company, I don't see this. I think VEBA would rather this company swim on its own than either merge or be bought out.
Most of the above is assumption on my part as I have not done a through analysis of the company, its balance sheet or its operations.
Fire away....
-Scott |
