More updated post.
Excerpt from the original post:
Who is doing the selling?
First, lets estimate the number of shares sold to this point in time. I estimate that it is likely that the sellers have dumped 50,000 shares a day since July 27. That is approximately 1.3 million shares by the close of trading on August 31. Even if the selling was only 35,000 shares a day , the sellers have dumped about 910,000 shares. OTOH, the selling could easily be more than 50,000 shares a day. I estimate the weighted average selling price is around $5.40 a share since July 27th. The average price decline per day since July 27, has been about seven cents, or 1.16% per day.
Update:
I estimate that it is likely that the sellers have dumped 50,000 shares a day since July 27. That is approximately 1.45 million shares by the close of trading on September 3. Even if the selling was only 35,000 shares a day , the sellers have dumped about 1,015,000 shares. OTOH, the selling could easily be more than 50,000 shares a day. I estimate the weighted average selling price is around $5.30 a share since July 27th. The average price decline per day since July 27, has been slightly less than five cents, or 0.80% per day.
The sellers will need to double that rate of decline over the next eight trading days, just to keep the conversion rate from climbing… Clearly the sellers haven't been selling enough stock, and will have to increase their sales significantly to keep the conversion price from dropping. If they want to keep the Death Spiral hoax alive, they need to start selling at a much higher rate.
Excerpt from the original post:
What if it is Castle Creek selling?
Castle Creek could be shorting against their variable conversion preferred shares, but using the conversion price of 4.55 as of today's close, CC will get about 1,720,00 shares for the convertible preferred. They will have already dumped 910,000 shares at an average price of about 5.40, and will have only 810,000 shares net.
If we add the value of their shares at this point, it would be 910,00 sold at $5.40 plus 810,000 left valued at $4.3125 which adds to $8.41 million. This is versus the face value of the preferred at $7.83 million or so. This just doesn't add up to a lot of money, especially if you add commissions, management fees etc.
Update:
Castle Creek could be shorting against their variable conversion preferred shares, but using the conversion price of 4.42 as of today's close, CC will get about 1,770,00 shares for the convertible preferred. They will have already dumped 1,015,000 shares at an average price of about 5.30, and will have only 755,000 shares net.
If we add the value of their shares at this point, it would be 1,015,00 sold at $5.30 plus 755,000 left valued at $4.75 which adds to $8.97 million. This is versus the face value of the preferred at $7.83 million or so. This just doesn't add up to a lot of money, especially if you add commissions, management fees etc.
OTOH, if CC hasn't been shorting much, then they stand to make a bundle if they convert, and if we get a rebound to the stock price we had in early July. They stand to hold over $12.4 million dollars worth of shares if the price gets back to 7, versus the face value on the preferred of about $7.83 million at this time.
Excerpt from the original post:
Last Wednesday, I talked to the Valence CFO, Mr. King. He admitted that they had talked to CC about the variable conversion. He told me that CC has denied that they had shorted the stock this month. CC doesn't want to surrender the variable conversion, and turned down a Valence offer in that regard. He did not tell me any of the terms that were discussed. CC told him they were bullish on Valence, and were mystified about who is doing the selling we are seeing.
I guess CC could be lying, but I don't believe that CC is doing all the selling we see. At most, they are probably only shorting only a few shares at opportune times.
Update:
It is possible that at this time, CC is selling the stock… I don't know what they are claiming at this point.
But, I think it will at least 300,000 and probably take over 500,000 new shares sold by the selling coalition to get and keep the price at 4.25 for six days out of the next ten. If they then get the conversion price to 4.25, then CC will only get 73,000 additional shares from the conversion. Its becoming increasing impossible to keep the offstated theory on this thread alive… the Death Spiral activists claim that if CC sells/shorts shares, then they drive the price down enough that they get more shares than they sell from the improved conversion price. This claim has always been suspect, but especially now its becoming clear this claim isn't true… the rate of decline in the stock price has been insufficient for this to be true.
If Castle Creek hasn't been selling, then who is?
This is where it gets really interesting. If I use the 50,000 shares a day estimate, then somebody out there has sold 1.45 million shares. It could be longs frightened out by the floorless, and it could be shorts who are trying to play the floorless. In any case, once CC converts, the shorts will cover, and longs on the sidelines will try to re-enter the stock.
Excerpt from the original post:
The question is: Who will be selling the stock at that point?
According to Mr. King, the directors of the company are not prohibited from buying the shares at this time, only the officers. The key directors are Carl Berg, Bert Roberts, and Alan Shugart… any one of these individuals has the financial clout to end this sell-off if they decide to. We already know that Carl Berg was buying heavily for a few days at the end of July. Mr. King also mentioned that the insiders are prohibited from trading the stock in the last 30 minutes before the close.
The pattern of the selling suggest that one or more of these insiders are supporting the stock at this time, and if they aren't, then someone who has very deep pockets is. For example, today someone took a 41,000 share block and an 11,000 share block within minutes from the selling coalition, then bid the price up until the sellers appeared again, and then backed down.
It appears to me that shares are moving from the selling coalition to some very strong hands. These buyers aren't likely to surrender these shares soon, certainly not at 5, not at 6, and probably not even at 7.
This reminds of the rich guy who liked a stock, and directed his broker to buy 100,000 shares a day for 60 days. Everything worked fine, the stock rose every day for 60 days. At the end of that time, the guy decided to sell, and called his broker up. "Sell my shares" he demanded. His broker replied "To whom? … You have been the only buyer for the last 59 days!"
Well, the same thing seems to be happening in reverse here.
Imagine what is going to happen when the selling coalition when they decide to try and buy 1.3 million shares back, not to mention shorts tryiing to cover who were already short prior to July 27. There simply won't be any significant sellers for the first point or two. There should be a significant snap back.
Update:
MGV has said the sell-off isn't over and that the stock will go significantly lower. What will happen then?
In order to drive it lower for 10 more days will probably take another 500,000 shares from the selling coalition, and perhaps more. Then the sellers will need to replace almost 2 million shares. The rebound will be even sharper.
What will be the timing of the snap back?
If CC converts, then I believe this game is up, so I've been monitoring the conversion price changes. When the conversion price starts rebounding, I believe there is a significant chance that CC converts. At the current conversion price, they already get 50% more shares than originally. At this time the selling coalition is faced with a tough challenge; they must get the price below 4.35 by next Friday, and keep it down there for four days, just to keep the conversion price from climbing… they can't let the stock get away to the upside, or they will have a hard time pushing the stock down below 4.35. Every day the stock closes above 4.56 puts the pressure on them. And they must have figured out that there is some significant downside resisitance below 4.50… someone is lurking down there with some pretty big bucks.
Given this, a likely trigger will be if CC reaches a negotiated settlement with Valence on eliminating the variable conversion. Initially CC asked for a pretty stiff price to surrender the variable conversion, but since CC's position could very well weaken over the next week, its quite possible that they may reach a negotiated settlement. If they do, that's the end of the death spiral threat, and the price pops.
Another possible trigger, is the report on insider trading for Valence for August, which must be submitted to the SEC by September 10th, and generally becomes public knowledge sometime between then and the 15th. This report could show some really large director purchases on the open market, and could spark a reversal.
Thus it appears there is a significant chance that we get a snapback rally in the next eight trading days. Looking at the strategy of the buyers, it really is impossible to predict exactly when it will end, because this depends on a decision by the selling coalition to stop selling… I just don't know how stupid they will be.
Well this is just all my analysis and opinion, and anyone is free to disregard it.
Paul
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