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Post by dreamboatcruise on Dec 21, 2017 19:17:49 GMT -5
Many here, including myself did express being impressed with Mike's ability to pull that off. However, it now appears that it was a bit of smoke and mirrors employed (including two "analysts" who were competing for the PIPE business, and now one has turned negative) to orchestrate that temporary run up, which was good for the PIPE but now the inevitable correction has left many feeling a bit sick from the roller coaster ride. While being impressed with Mike pulling it off at $6, many people believe that a majority of the shares likely went to purchasers that would have shorted the shares immediately when the deal was concluded and locked in the discount given them as profit... if true that isn't investors taking a risk because they believe in long term of company. Whether that is true or not I don't think any of us know, but the perception is likely why the transaction didn't support share price staying that high. At the risk of sounding stupid - and when it comes to shorting stock I admit I pretty much am: How does one buy shares and immediately short them or even short them at all? I understand a share owner can lend shares to someone to sell who sells them and then later buys them back at a lower price and gives the borrowed shares back to the lender. I also could imagine a purchaser of say 10 million shares af $6, for example, having first shorted the stock at a higher price and using the purchase to pay back the borrowed shares. What I don’t understand though is how someone can purchase shares and short them themselves for a profit. The latter it seems to me would be just like purchasing shares and then selling them. If they bought shares at $6 why would they sell at lower prices? In this case the shorting is before the price drops, and an important context is that a company with a legitimate economic hedging interest can do so even if they seemingly have inside information. At least this is my understanding. If someone at MNKD were to leak to me that they were going to do a financing at $6 when the stock is trading at $6.60 and I shorted it, it would be insider trading, but apparently there is an exception for transactions like this where the short is considered by SEC as a valid step in hedging a financial transaction. [please someone jump in if I'm misrepresenting securities laws] So what happens in these situations is that the stock is trading at $X. The company concludes a deal with a purchaser to buy shares at 10% below $X with delivery on some specified day in the near future. This info does not have to be made public immediately. In the interim the purchaser borrows shares (or if the delivery of shares from the company is within 3 days, they might get aware without borrowing), shorts them at $X and has thus locked in the 10% discount as profit. When the shares are delivered by the company they are either returned to lender or delivered to the purchaser in the short transaction depending on whether shares were actually borrowed. No one knows this was what was done, but apparently not at all uncommon in PIPEs done from a need to raise capital. |
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