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Technology Stocks : The New QLogic (ANCR) -- Ignore unavailable to you. Want to Upgrade?

To: George Dawson who wrote (18806)	10/26/1998 3:04:00 AM
From: Eleder2020	Read Replies (4) \| Respond to of 29386

>>If they need to cover this position we should see the rate decrease again this month. << I agree with you here George. The rate of shorts going up should decrease because they are limited to the 5% maximum and if they haven't covered it would make sense that that rate would decrease. I do disagree about the covering though. Take Greg's example for instance and let's pretend this is the total conversion. >>Example: On 9/25/98 a Series C preferred share was worth 10,160 shares of common stock. The closing price on that day was $2 1/8, which was not the high for the day. The market was offering the preferred shareholder $21,591 for their $10,000 preferred share. The easiest way to make the transaction is to sell short 10,160 shares. The preferred shareholder bought this preferred share in 2/98 and now "sold" this share in 9/98 for an annualized return of 223%, with absolutely no market risk.<<< Now the Series C holders are short 10,160 ANCR shares(they pocketed $21,581) and long 10,160 ANCR converted shares. The position is now boxed. Say the borrowed shares weren't even yours and for some reason you shorted 10,160 of someone elses ANCR shares. Now the shareholder you borrowed stock from wants their 10,160 shares back(he wants the actual certificates) and you have to cover. Just DELIVER him your 10,160 converted Ancor shares. You don't have to buy them back to replace your short because you already own enough stock to cover the shares you need to replace. So covering doesn't really hurt or help Ancor because no new buying is involved in covering. You get the same result from never covering if you short your own shares because your not going to demand that you cover your own short with your own converted shares. You've seen all the money you are going to see from the transaction when you sell the short. Net result is Series C holders made $21,581 on a $10,000 investment. Ancor repaid their debt in stock. 10.160 new shares added to the float and the entire transaction is done. NO? I just don't see how covering would help the share price of Ancor because it doesn't involve any buying of Ancor shares on the open market. No? George, Greg- Tell me I'm wrong and I'll give up on this point. I think Greg's scenario makes sense and is certainly very plausible. On the other hand it is not the only way possible. For instance I would question whether the series B and C holders have the same objectives or that they even know each other. For instance the Saudi Prince went his own way right out of the box. Have we numbed a few of you out there with beating this horse? Ed

To: George Dawson who wrote (18806)	10/26/1998 12:12:00 PM
From: Greg Hull	Respond to of 29386

George, <<My take on your example, is that the easiest way to realize the return is just to sell the converted shares long and if you think the price will go down, borrow shares and go short at that position also. This is the quickest way to realize the profit and hedge against decreasing share price>> In order to sell long, wouldn't you have to own common shares? That is, you took a perfectly secure investment (a preferred share) and converted in into a less secure instrument. What is their incentive to do this? Selling short captures the same gain without having to carry any volatile instruments. While they can sell short and convert on the same day if they wish, they cannot convert and sell long on the same day. It takes more than a day to receive the common shares. Selling 10K shares long and 10K shares short creates the same downward pressure as selling 20K shares short, doesn't it? If the intent is to drive down the price, short selling is just as effective. <<"The question that puzzles me is "why would they ever cover?" I think the answer is that their broker is obligated to make sure that the preferred shareholders don't sell more common shares than the Prospectus specifies that they can deliver. The amount they can deliver is proportional to the number of preferred shares they still own and inversely proportional to the conversion price." They need to cover because that is the nature of short sales - the shorted stock at the higher price is borrowed and sold with the hope of buying it back at a lower price later.>> I phrased the question poorly. I should have said "why not postpone covering the short for as long a period as possible?" The beauty of the Series C terms is that their is no "hope" involved for the preferred shareholders. They KNOW the price at which they they can buy the "borrowed" shares today, tomorrow, and 3 weeks from now. <<With regard to the Series B - I thought it was no longer a factor.>> My comment on using Series B shares to drive down the Series C conversion price was speculation on the past. We have heard second hand that all Series B shares have been converted, and I assume we will have this confirmed first hand at the CC on Wednesday. <<If there is no bad news, the risk of this short position increases as the preferred shares diminish.>> I have read that the big time investors and fund managers are very good at eliminating or minimizing risk. For the same reason that I don't see why the preferred shareholders would carry a naked long position, I don't see why they would carry a naked short position. If this reflects their mindset, the short position reported monthly on viwes might also represent their long position. Having said that, I can see how they might succumb to the siren song of Ancor as a pure play FC opportunity and buy some really cheap shares to just sit in their account hoping for a 10 bagger. You have expressed interest in the end game. I hope you can figure it out and educate the rest of us. I've thought about it a little, but can't get my hands around it. Will it play out with barely a whimper, or like a supernova? To all: I am eager to continue this discussion with interested parties, but I would be happy to take it off-board. I suspect that the CC on Wednesday will give us other things to talk about later this week, but I am willing to table public discussion before then. Greg