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Technology Stocks : NTN Communications, worth 185 million? -- Ignore unavailable to you. Want to Upgrade?

To: dwight vickers who wrote (1994)	2/14/1998 5:53:00 PM
From: Rich Genik	Read Replies (2) \| Respond to of 2985

Dwight, I'm just thinking that for S&S to make money on shorting the stock, someone has to lose money: the holder that lent the shares. Could the shares that I own have been lent? If not, then it would be the market makers and institutional holders. These types are supposed to be "in the know" and I can't see them complacently giving away money. If they didn't borrow shares and just set up an off-shore short position, then someone is really taking a bath on the deal. This kind of deal looks more like gambling as no securities actually changed hands. Also, if no securities actually changed hands, why the downward price pressure? In any case, let's soldier on: say the have a 5M share short position somehow. Let's also assume that they hold the shares at $4 and the average of the 3 lowest bid prices by 28 Feb. is 0.50. The Initial Conversion (at each subsequent one) is for $1.75M of pfB shares. They can convert into a maximum of 1.13M shares at the 15% discount (assuming 23M shares outstanding), so that is $480k. The remaining shares are at 0.50, so 2.54M shares, yielding a total of 3.7M. So, my guess is that they cover their short position on this many shares ($14.8M) and reap a quick profit of $13.1M. So it's March 1st, S&S is $13.1M richer, they still don't own any NTN common shares, they have a 1.3M short position left, and they own $5.25M of pfB shares. They also now have a conversion ceiling of 0.70 per share for all subsequent conversions up to 1.13M shares at each conversion, regardless of the current price, let's make this $750k worth of pfB shares. If we're back to hovering around $1 at the second conversion, S&S get 2.1M shares. Assuming that they have been shorting some more around $1 to keep the price down, all of these shares now go toward a cover. Net profit: $4.25M. So after the second conversion, S&S has $23.5M of its $27M in capital ($7M to NTN, $20M for the short position) back, has made $17.4M so far, and still owns $3.5M pfB shares. At this point, it doesn't make sense to continue to tie up capital holding a short position, and they would be much better off for the stock to go up and make a long profit on the remaining converted shares. Under this scenario, the evidence we would be looking for that they have been shorting the stock is a downward movement to $0.50 the week of the conversion (I don't think that they can drive the price much below that, NTN would have to do that themselves with some horrible announcement), hanging around $1 or less up to the second conversion, and then a steady rise to say the $2-3 range. S&S might just keep the 3-4M shares they would receive in the final two conversions. They didn't really pay anything for them (actually made about $12M acquiring them) and any sale would be 100% additional profit. If NTN survives, I could envision $4 by next year, and that would be another $12M profit instead of $6M if they dump immediately. If all of this plays out, which I'm not positive it will, I can see how this type of financing can be "destructive": NTN and its shareholders would have been better off with an 8M share additional common offering priced at $2 when the stock was hovering around $3. comments welcome. Cheers, Rich