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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Roger A. Babb who wrote (17254)	1/29/1999 10:37:00 AM
From: Oeconomicus	Respond to of 18691

Roger, I agree it is smart for AMZN to bring in cash while the mania is still going. Simply issuing stock would have been more prudent though, IMO. They will be paying $59.4 million in interest each year until the note holders convert (paying them with their own cash for the foreseeable future). This is on top of the $50 million or so p.a. they will eventually have to pay on last year's notes. If they use this cash to pay for acquisitions as the analysts seem to expect (of other money burners no doubt) rather than using stock, their financial position will become even more precarious as they won't have the investment income to offset the interest (at least on this note they can about break even for now). Their tangible net worth is a big negative number now and will get much worse over the next couple years. The worst part about this, however, is how it increases the risk to current shareholders while only benefiting them by a slight reduction in what would have been minimal dilution anyway. Eight million shares is what this can be converted to. That's only about a 5% increase in fully diluted shares. Had they issued stock at $100 instead, the investment income that would benefit all shareholders (rather than just a few Morgan Stanley customers) would amount to more than 30 cents a share per annum. Instead, the shareholders get pushed down in the capital structure so they now have $1.75 billion of claims ahead of them on a company that has yet to demonstrate that it can ever turn a profit at all, much less one that can service the debts. The debt holders could easily end up owning the company. All the current "shareholders" own is a very expensive long-term call option and we all know that the vast majority of options expire worthless. Regards, Bob