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Biotech / Medical : XOMA. Bull or Bear? -- Ignore unavailable to you. Want to Upgrade?

To: Kushi Kullar who wrote (6745)	7/21/1998 12:09:00 AM
From: aknahow	Read Replies (2) \| Respond to of 17367

There is another risk. At first it seems there is no risk because one would sell short first before conversion. The selling should drive the price lower. If the stock was sold short at $5, with $12.5 million of stock divided by 5 one would have sold 2.5 million shares. If the selling drives it down to $3 one collects $12.5 million worth of stock or 12.5/3 or 4.17 million shares. (the discount adds additional profit, but am ignoring it for this example.) One would only need to use 2.5 million shares to cover the previous short. At this point the discount has been earned. The entire original investment of $12.5 has been recouped and one still has 1.7 million shares to hold or sell. What can go wrong? There is still a risk. We assume the stock drops because of the short selling against the box but what happens if other events make the stock go up after the holder of the c.v.p. has sold short? In this case covering by conversion results in fewer shares being received than were sold short. So, IMO the risk while it may seem minimal is still there but it comes from another direction. A drug approval or a buyout are two events that could produce a large loss. Because risk exist and the contract specifies limits on sales I think things will be done in an orderly manner to accomplish the goal of both parties which is to use a loophole in the law to sell stock to the public