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Technology Stocks : IFMX - Investment Discussion -- Ignore unavailable to you. Want to Upgrade?

To: Robert Graham who wrote (10806)	5/16/1998 2:26:00 PM
From: Robert Graham	Read Replies (2) \| Respond to of 14631

Here is a followup post to my previous post on the convertible preferred and the effect that the preferred can have on the price of the stock. What I did not know about this Reg-S deal until now is the date the holder can convert, and at what low cost. If I am not mistaken, their cost was 2 for the preferred convertible, with a conversion price of 4. Now tell me, if Informix had to provide the very generous terms of essentially a short term profit in this way in order to procure funds, what will the purchasers of this convertible preferred be willing to do when they can convert for a short term profit now? We are talking about approximately a 30% profit on their money they can have as of Monday of next week. Some will sell next week. More will follow in the near future. Furthermore, if the price breaks below 8, many more will sell to lock in the profit that is left for them. The shareholders have seen the stock at 10 drop down to 8 on a "positive" earnings report. The selling of the stock before the earnings report on what must of been on a small profit for an earnings play gives me a clue into the sentiment of the shareholder. The continued selling after what can be considered a "positive" earnings report for a turnaround effort confirms to me this negative sentiment. I think there are many with this same developing pessimistic sentiment, at least for the short term for IFMX stock. There is no logic to be found behind the effects of negative investor sentiment, so some people's attempt at understanding the logic behind why IFMX has sold off on this earnings report will produce no results. The purchasers of the convertible preferred may not be as patient with a profit available to them right now for their taking. I think the deal was structured to attract those who would be interested in a short term profit. 22M shares is not a good percent of the total float, but it still is allot of shares with respect to the average daily volume of this stock. Consider the current average trading volume and divide this into 22M shares to get an idea of its potential impact. Lets even take a high figure of 4M. 22M shares represents 5 full days of sellers who can make a quick profit all the way down to a share price of 6. So if there are not many shareholders willing to step up and purchase this stock from them, the price will go lower and they can respond by continuing to sell at a profit. The resistance at 8 where the stock is close to now can provide a supply of shares at that price for the conversion of the preferred shares. Once this price breaks below 8, a price of 6 becomes possible. Furthermore, when others sitting on the side lines see this price drop toward, this may cause the speculators who came in at below 8 to sell. I do not think the price action of this stock over the near term will induce confidence and loyal support. I think it may have the opposite effect and encourage additional selling. As one person has suggested to me, perhaps those who purchased below 8 can sell and repurchase once this selling has settled. For me, I am going to write a deep in-the-money CALL option to weather this volatility. If I get called on my stock, then so be it, and I will move on. If I do not, I will cover at an advantageous price. So the CALL in this way will be "insurance" that I may even make some money on. But the way this turnaround is shaping up, I do not see anything positive coming from it in the near future. Furthermore, this indicates that Informix does not currently have available to it the short term financing it needs for a turnaround effort which will have its own impact on the timeliness and possibly even the eventual success of the turnaround effort. I definitely do see negative results to be had for us in the near future with respect to the stock itself and the covnertible preferred. I want to make clear that I still see positive potential for Informix over the longer term. I think this is the plan that Bob F has been implementing: survive through the short term, show positive results from the turnaround efforts over the long term. This methodical CEO is looking to the longer term future of Informix, so for instance that is why he has been focused on costs over the more proactive and costly aspects of his turnaround efforts, and why he wrote a convertible preferred deal to the short term disadvantage of the shareholder. When I have the time I will look more closely at the documents filed with the SEC to determine the specifics of each offering of convertible preferred and warrants. Bob Graham