Need clarification about the shares

[u1682002]

I know Matt made it clear the 50mil shares can not lent for short during the latest conference call. However there is a suggestion later from the latest saga that the shares bought from open market may still be able to be lent for short. Could someone from this board who knows the absolute answer please clarify this?

[anderson]

Okay only 13,852,435 share of the 50mil stock offering were bought. Those shares have the restrictions Matt talked about. To get more shares the ETF's will need(or have already bought) share like your or I do off the open market. There are no restrictions on those shares. Looking at www.shortanalytics.com/getshortchart.php?tsymbol=mnkd it 42% of the action on the NASDAQ was short sellers so only 12 million share actually bought last night(lets say the average price was $2.80). 13.8(2.61) + 12(2.8) = ~$69.6 million so if you can attribute that all the the TASE ETF's they still need to buy $140 - 69.6 = ~$70.3mill dollars worth of shares. So after buy and driving the price up more they can turn around and lend all those shares if their fund allow lending of shares. So they thing to thing think about right now is those ETF's still have a lot of buying to do.

I noticed some others have quoted that the ETF's needed $104 mil worth of shares so that would still leave ~$30.3 million worth of shares that need to be bought.

[me]

Any shares that the ETFs own for indexing purposes, cannot be lent, regardless of the source of those shares - direct purchase, open market or otherwise. That's what an ETF does, they buy AND HOLD (until rebalancing) shares on a weighted basis, representing the mix of the index objective. When they rebalance shares, they then sell some shares and buy others.

[mnkdfann]

Nov 12, 2015 20:27:56 GMT -5 me said:

Any shares that the ETFs own for indexing purposes, cannot be lent, regardless of the source of those shares - direct purchase, open market or otherwise. That's what an ETF does, they buy AND HOLD (until rebalancing) shares on a weighted basis, representing the mix of the index objective. When they rebalance shares, they then sell some shares and buy others.

Totally incorrect. ETFs can lend shares. Just google the phrase   Can an ETF lend shares   and you will find various authoritative explanations of how and why they do so. 

[anderson]

Nov 12, 2015 20:27:56 GMT -5 me said:

Any shares that the ETFs own for indexing purposes, cannot be lent, regardless of the source of those shares - direct purchase, open market or otherwise. That's what an ETF does, they buy AND HOLD (until rebalancing) shares on a weighted basis, representing the mix of the index objective. When they rebalance shares, they then sell some shares and buy others.

Me, I think you need to educate yourself some more.  Let me give you a few links
www.fidelity.com/learning-center/investment-products/etf/securities-lending

www.etf.com/sections/blog/time-etf-share-lending-come-clean

Look at Vanguard S&P 500
www.etf.com/VOO
Efficiency tab
Down on the right column
Securities Lending Active Yes
Securities Lending Split (Fund/Issuer) 100% / 0%



iShares Core S&P 500 (Blackrock)
www.etf.com/IVV
Securities Lending Active Yes
Securities Lending Split (Fund/Issuer) 70% / 30%

There are several listed as N/A so you dont know if they lend shares and some that dont lend shares. I am sure if you look at the prospectus for all these funds it is in the fine print somewhere.  TASE allows shorting and share lending so it most likely the same and it is on a fund by fund basis.

[james]

Perhaps it is a unique aspect of the funds on TASE, I don't know, but this was Matt's statement about it on the conference call.  The first thing I note is that Matt said the funds approached MNKD about buying directly from the company rather than the other way around.  If that is true, it is one indication that the company did not initiate the TASE listing for this purpose.  Perhaps they did it because of an intent to expand into Israel, or perhaps they did it knowing about the ETF non-lending policy.  Either way, that brings up the second point more germain to this thread in that Matt clearly stated that the TASE index funds do not participate in share lending.

finance.yahoo.com/news/edited-transcript-mnkd-earnings-conference-052608901.html

During the listing process, some of these funds approached us, suggesting they buy the shares from us directly, thus allowing their cash investment to be put to work inside the Company. We expect that the majority of shares for index fund purchases will be issued directly from MannKind, with remaining demand required to be satisfied by open-market purchasers from existing holders to fulfill these ownership requirements. All purchases are expected to be completed within next week.

Selling directly to these index funds offers critical benefits to MannKind's shareholders. First, these index funds are required to hold the stock essentially indefinitely as long as we are included in the associated index, providing a stabilizing force in the market.

Second, the index funds are required to hold the shares and not make them available for lending, and therefore will not be part of a potential shorting pool here in the US. You will remember that I have said more than once that the last form of financing I thought we should consider would be a traditional marketed secondary offering. There are many reasons for this, not the least of which is that such an offering would play into the hands of those who short our stock, allowing them a painless way to unwind their positions.

[nxc2]

Why did they not buy more shares at those prices?  Waiting for open Market does not make sense.  Unless the restrictions or lack there of are worth the risk.

[jeremg]

Nov 12, 2015 21:49:01 GMT -5 james said:

Perhaps it is a unique aspect of the funds on TASE, I don't know, but this was Matt's statement about it on the conference call.  The first thing I note is that Matt said the funds approached MNKD about buying directly from the company rather than the other way around.  If that is true, it is one indication that the company did not initiate the TASE listing for this purpose.  Perhaps they did it because of an intent to expand into Israel, or perhaps they did it knowing about the ETF non-lending policy.  Either way, that brings up the second point more germain to this thread in that Matt clearly stated that the TASE index funds do not participate in share lending.

finance.yahoo.com/news/edited-transcript-mnkd-earnings-conference-052608901.html

During the listing process, some of these funds approached us, suggesting they buy the shares from us directly, thus allowing their cash investment to be put to work inside the Company. We expect that the majority of shares for index fund purchases will be issued directly from MannKind, with remaining demand required to be satisfied by open-market purchasers from existing holders to fulfill these ownership requirements. All purchases are expected to be completed within next week.

Selling directly to these index funds offers critical benefits to MannKind's shareholders. First, these index funds are required to hold the stock essentially indefinitely as long as we are included in the associated index, providing a stabilizing force in the market.

Second, the index funds are required to hold the shares and not make them available for lending, and therefore will not be part of a potential shorting pool here in the US. You will remember that I have said more than once that the last form of financing I thought we should consider would be a traditional marketed secondary offering. There are many reasons for this, not the least of which is that such an offering would play into the hands of those who short our stock, allowing them a painless way to unwind their positions.

The points you have bolded are extremely important in figuring out the implications of the TASE listing. My though is Matt may have been referring to the terms MNKD wrote into the offering and not a specific rule witching TASE which disallows these funds from selling/lending/shoring. The terms of the offering changed in some way before closing (this is the confusion AF exploited), so I have to wonder whether Matt's words were written in stone or if he was speaking to the terms as of the CC (?). Hopefully we will find out the details of the closing at some point in the near future.

[james]

Jeremg, that is a very good point. The terms he was referring to might well have changed between CC and closing of the deal. I suspect somewhat that a prohibition on lending in this form may stem from a cultural practice, but I certainly don't know.

I am fascinated by the idea that the funds approached MNKD rather than other way around. What exactly was the motivation to list on TASE? Here are some quick thoughts, are there others?
1) Knowing about share lending lockup - MNKD simply hoped to squelch the short pool through the index funds
2) Following the lead of other companies, MNKD wished to raise capital indirectly by creating demand through the funds and later selling in the market
3) MNKD simply wanted to reach a different pool of investors (individual) through the TASE
4) MNKD expects to engage in other business in Israel in the near future
5) Matt was fudging when he said funds approached MNKD to suggest buying direct

[jeremg]

Nov 12, 2015 22:30:48 GMT -5 james said:

Jeremg, that is a very good point. The terms he was referring to might well have changed between CC and closing of the deal. I suspect somewhat that a prohibition on lending in this form may stem from a cultural practice, but I certainly don't know.

I am fascinated by the idea that the funds approached MNKD rather than other way around. What exactly was the motivation to list on TASE? Here are some quick thoughts, are there others?
1) Knowing about share lending lockup - MNKD simply hoped to squelch the short pool through the index funds
2) Following the lead of other companies, MNKD wished to raise capital indirectly by creating demand through the funds and later selling in the market
3) MNKD simply wanted to reach a different pool of investors (individual) through the TASE
4) MNKD expects to engage in other business in Israel in the near future
5) Matt was fudging when he said funds approached MNKD to suggest buying direct

If anything the 3% discount is an incentive to buy direct as opposed to on the open market, the other reason would be to execute large block trades without affecting share price. Besides not wanting to take on the terms of the offering, I still don't understand why they would opt to buy on the open market with only 13mil shares coming from The offering, very strange.

[mbseeking]

Nov 12, 2015 22:40:23 GMT -5 jeremg said:

Nov 12, 2015 22:30:48 GMT -5 james said:

Jeremg, that is a very good point. The terms he was referring to might well have changed between CC and closing of the deal. I suspect somewhat that a prohibition on lending in this form may stem from a cultural practice, but I certainly don't know.

I am fascinated by the idea that the funds approached MNKD rather than other way around. What exactly was the motivation to list on TASE? Here are some quick thoughts, are there others?
1) Knowing about share lending lockup - MNKD simply hoped to squelch the short pool through the index funds
2) Following the lead of other companies, MNKD wished to raise capital indirectly by creating demand through the funds and later selling in the market
3) MNKD simply wanted to reach a different pool of investors (individual) through the TASE
4) MNKD expects to engage in other business in Israel in the near future
5) Matt was fudging when he said funds approached MNKD to suggest buying direct

If anything the 3% discount is an incentive to buy direct as opposed to on the open market, the other reason would be to execute large block trades without affecting share price. Besides not wanting to take on the terms of the offering, I still don't understand why they would opt to buy on the open market with only 13mil shares coming from The offering, very strange.

Struggling with this too..  Came up with two possible reasons.  1. (seems more likely).  These funds have other stakeholders.  Whilst 3% is 3% it doesnt feel quite as transparent as buying on the open market.  They may have judged that weighing in on the open market would be perceived as more faithful to their mission than buying in a way that no one else could.  Yes its a stretch, but not impossible considering they did buy some direct..  2. Less likely , but plausible.  Maybe they didn't want to give Al everything he wanted.  With what happened they certainly did everything that could be done to take shares out of the market which could be shorted.  But by keeping Al on a short leash maybe they keep him at the table for another negotiation in Israel.

[obamayoumama]

Nov 12, 2015 22:40:23 GMT -5 jeremg said:

Nov 12, 2015 22:30:48 GMT -5 james said:

Jeremg, that is a very good point. The terms he was referring to might well have changed between CC and closing of the deal. I suspect somewhat that a prohibition on lending in this form may stem from a cultural practice, but I certainly don't know.

I am fascinated by the idea that the funds approached MNKD rather than other way around. What exactly was the motivation to list on TASE? Here are some quick thoughts, are there others?
1) Knowing about share lending lockup - MNKD simply hoped to squelch the short pool through the index funds
2) Following the lead of other companies, MNKD wished to raise capital indirectly by creating demand through the funds and later selling in the market
3) MNKD simply wanted to reach a different pool of investors (individual) through the TASE
4) MNKD expects to engage in other business in Israel in the near future
5) Matt was fudging when he said funds approached MNKD to suggest buying direct

If anything the 3% discount is an incentive to buy direct as opposed to on the open market, the other reason would be to execute large block trades without affecting share price. Besides not wanting to take on the terms of the offering, I still don't understand why they would opt to buy on the open market with only 13mil shares coming from The offering, very strange.

Remember that there is the largest ETF yet to go.  Once MNKD market cap is over 1.5 billion or around $3.50 then the TASE25 will need to buy MNKD shares.  If I were Matt, I would not sell all 50 million at $2.61, but rather wait until MNKD was higher, over $3.50 before I would sell the rest, if needed.  This forces the ETFs to buy more in the open market at the lower price, and allows MNKD to sell the remaining shares at a higher price.  Great job Matt

[kc]

Nov 12, 2015 22:49:49 GMT -5 mbseeking said:

Nov 12, 2015 22:40:23 GMT -5 jeremg said:

If anything the 3% discount is an incentive to buy direct as opposed to on the open market, the other reason would be to execute large block trades without affecting share price. Besides not wanting to take on the terms of the offering, I still don't understand why they would opt to buy on the open market with only 13mil shares coming from The offering, very strange.

Struggling with this too..  Came up with two possible reasons.  1. (seems more likely).  These funds have other stakeholders.  Whilst 3% is 3% it doesnt feel quite as transparent as buying on the open market.  They may have judged that weighing in on the open market would be perceived as more faithful to their mission than buying in a way that no one else could.  Yes its a stretch, but not impossible considering they did buy some direct..  2. Less likely , but plausible.  Maybe they didn't want to give Al everything he wanted.  With what happened they certainly did everything that could be done to take shares out of the market which could be shorted.  But by keeping Al on a short leash maybe they keep him at the table for another negotiation in Israel.

Other stakeholders like Teva or Retired chairman of the board of Teva Phil frost

[me]

mnkdfann and anderson, I'm not certain you can equate the TASE "ETFs" with, say, iShares ETFs.  The TASE "ETFs" are actually exchange indices, and they thereby serve a different purpose than ETFs.  Indices are passive instruments.  You may buy/lend against the index via an ETF, but the index itself is a weighted expression of the components.  In fact, on TASE, there are specific TASE index baskets that are available for shorting, but they are baskets of the all stocks in that index.  In other words, the Index may be shorted, but the index itself is passive.  That's not to say that participants in the TASE cannot short MNKD...they can.  And those participants may be the "buyers" for stocks for the indices, but the MNKD shares held within the indices are not traded, except upon rebalancing.

[rrtzmd]

Nov 12, 2015 22:30:48 GMT -5 james said:

Jeremg, that is a very good point. The terms he was referring to might well have changed between CC and closing of the deal. I suspect somewhat that a prohibition on lending in this form may stem from a cultural practice, but I certainly don't know.

I am fascinated by the idea that the funds approached MNKD rather than other way around. What exactly was the motivation to list on TASE? Here are some quick thoughts, are there others?
1) Knowing about share lending lockup - MNKD simply hoped to squelch the short pool through the index funds
2) Following the lead of other companies, MNKD wished to raise capital indirectly by creating demand through the funds and later selling in the market
3) MNKD simply wanted to reach a different pool of investors (individual) through the TASE
4) MNKD expects to engage in other business in Israel in the near future
5) Matt was fudging when he said funds approached MNKD to suggest buying direct

My own opinion is that the only reason MNKD listed in Tel Aviv was to take advantage of the ETF mandated rebalancing. That gave MNKD a "captive audience." Several of the articles I read from Israel that I quoted elsewhere were quite down on MNKD coming in and "looting" Israel for money by taking advantage of that rule. 

Indeed, the ideal source of financing would have been Sanofi. Sanofi is, after all, MNKD's partner. Sanofi depends upon MNKD for its supply of afrezza and presumably wouldn't want that supply disrupted by MNKD's financial problems. SNY is wealthy and could easily have afforded to buy 25 million shares for 4 bucks a share. Or the money could even been taken as an advance on a future milestone. Either way, think what an impression that would have made on the market. SNY would be demonstrating clearly their confidence in afrezza and the MNKD deal. It would have alleviated considerable financial woe for MNKD and likely made further financing more easily accessible. The stock would have gone up who knows how high on the news.

Look what you have now -- more uncertainty. MNKD got only an additional 36 million dollars -- hardly enough to cover 4 months burn. After that -- what? Then there's uncertainty about what the ETFs can do with those shares. My own analysis suggests that unless MNKD has a contract signed by the ETF managers saying they won't lend out the shares under any circumstances, the TASE has no restriction about ETFs lending shares via the NASDAQ.