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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Ausdauer who wrote (21352)	12/19/2001 9:10:27 PM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 60323

Aus, first of all, the latest press release indicates $125 million convertibles at 4.5% interest rate and conversion to stock when the stock reaches a little over 18. The advantages of this type of financial instrument are that the interest rate is lower than on a pure bond, where rates would probably be around 7 percent. The reason is that convertibility gives the bondholder some upward potential beyond the fixed income of the bond. The second advantage is that if the stock goes up, then what started out as debt turns into equity, giving the company a better ratio of assets to liabilities. The disadvantages to existing shareholders are twofold. First, the interest obligation cuts into any profit that might accrue to the common shares. Second, as the bonds are converted into equity, you get earnings dilution. This could keep the price of the shares down, or put another way, could mean that the stock is not likely to exceed $20 per share for quite a while. If SanDisk regains profitability as a result of a huge expansion in demand for removable flash memory, this convertible issue will be seen as a cheap way to raise cash. However, what concerns me is that SanDisk should NOT have been in need of such an infusion, given the extent of its manufacturing facilities. Something here doesn't look right. Art

To: Ausdauer who wrote (21352)	12/19/2001 9:34:07 PM
From: NHP	Read Replies (3) \| Respond to of 60323

Aus, you asked, "What are the advantages/disadvantages of doing this type of offering [debentures] with the current stock price? What is the logic behind this?" There isn't any from the standpoint of SanDisk stockholders, but the purchasers of the debentures will do all right because they will be getting the equivalent of a 4.5% "dividend" on their "potential common stock" while waiting for the price to appreciate. Meanwhile, they are exposed to less risk than you and I. In effect, they have a 5-year dividend-paying call that is very close to being in-the-money. I have no problem with the concept of convertible debentures, but on this one I smell a rat. Why was the conversion price set so close to the market price of the stock?. One might suspect that individuals in SanDisk management are positioned to benefit from the issuance. What does this mean to you and me? It means that there will be 6,786,000 new shares of SNDK issued as a result of this offering, which is approximately a 10% dilution of the stock. Other things have happened in the past that have raised my eyebrows. I remember when the SNDK stock was $16 (pre-split), and two glowing press releases came from SanDisk. The price shot up to $19 in one day, only to retreat a day later when an earnings warning was released. One of the contributors to SI purchased at $19 only to see the price rapidly go down to $6 or $7. The purchase by SanDisk of the company that was working on storing 20 bits of information per cell.... how is that progressing? Did SanDisk purchase the company because it felt that 20 bits per cell held promise? All in all I think there is a credibility problem here. I sincerely hope I am wrong. Regards, NHP This figure might actually be low because the most recent announcement states that $125M in debentures were bought, with an option to buy another $25M within the next 30 days.