Simple question:
If you are holder of the 5.6% notes, what will you do if you are forced to convert (in to stock or new 12% notes)?
Short the stock and increase conversion shares, as simple as it is. :(
Now, let analyze *creative financing*!
1. Notes: At 12% interest 28 M borrowing will generate in three years 11 M, or 34.5 % increase. This lower fixed conversion price of 20.5 to 15.25 (if interest is converted at fixed price which may not be a case, it can be floated conversion) or 12% discount to stock price @17, the average when deal is announced. Total shares to conversion: 1.9 M. So much about premium! :(
2. Warrants notes: If this warrants notes are purchased and exercise today and hold for conversion until 2002 it means additional 21 M for SUGN, but also 8.5 M in interest and additional shares with total shares conversion: 1.44 M.
3. 5% notes : If this 5.6 M is converted to 12% notes it will generate (no cash for SUGN) 2.3 M in interest and total 0.38 M shares for conversion.
Summary is that for 49 M cash SUGN will issue 3.62 M shares, or this will be equivalent to public offering at 13.5 per share. So much about large dilution! :(
I understand that financial condition for bts are worse than ever (as far as I remember) and that this placement is best what they can do. May fear is that things can go even worse than today, so SUGN may be forced to make worse deal.
Yes, someone can argue that for now they have extra 21 M in cash and stock price may appreciate, so the deal will not look so bad. Only, this 21 M can/will be burned in one Q or 1 1/2 Q at the best, so few months from now we will be in the some position. Also, if the stock price will appreciate (I hope it will), why was so difficult or unfavorable for large institutional investors to participate in public offer. For instance at 15, pay off 5% notes and move on.
With the five pivotal trial by mid 99 and two NDA file by mid 2000, are there not sufficient guaranty that stock is attractive and company future looks solid, and compared to many others. What am I missing???
Is my optimism about SU101 and SU5416 unfounded and misplaced???
Please help!
Miljenko |
