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Post by reality on May 10, 2016 6:45:30 GMT -5
Could this be because of his passing away this quarter. i would think this is a risk statement they need to make in any case. no?
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Post by kball on May 10, 2016 6:54:59 GMT -5
"Surprise, its insulin dilution"
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Post by agedhippie on May 10, 2016 7:33:30 GMT -5
The offer comprises warrants plus a share for $1.03. If we say the warrant is worth $0.5 that means the share must be the residual $0.53. You are adding the cost of exercising the warrant or not into the price which is wrong just as adding the price of exercising or not an option does not affect the price of an option. So if the warrants are never exercised, they are worthless and the 1.03 price is all for the shares... if the warrants are exercised then they are factored in as compound said which again results in approximately $1 / share... same / same, no? No. Since it is essentially equivalent to a LEAP a warrant can be priced by a variant of Black-Scholes that allows for the cost of dilution. That will put the price of the warrant at about 50 cents. You can now trade that warrant for 50 cents and that is the end of your interest. The price is not affected by whether or not the warrant is ever exercised. On May 12th any of the 'select institutions' can sell their warrants and be done. So as an exercise - they have paid $1.03 for the warrant and share, recovered 50 cents from the sale of the warrant, what did they pay for the share? It's not about $1, you will find the IRS is pretty definite on this! |
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Post by matt on May 10, 2016 8:22:15 GMT -5
Since it is essentially equivalent to a LEAP a warrant can be priced by a variant of Black-Scholes that allows for the cost of dilution. That will put the price of the warrant at about 50 cents. You can now trade that warrant for 50 cents and that is the end of your interest. The price is not affected by whether or not the warrant is ever exercised. At first I was going to disagree with you on pricing, but then I looked at the options chain and the implied volatilities. The January 2018 calls with a $1.50 strike trade for about 55 cents, although that will drop when the market opens, and the fair market value of a warrant is lower than the price of a call option since warrants increase the shares outstanding, thereby diluting existing holders, while exercise of an option does not change the number of shares outstanding. If I was more awake I would crank the numbers properly, but for now 50 cents is in the ball park but maybe a tad high (but only a tad).
Because the warrants will be separately tradable securities, when those price in the market on Thursday we can see just how dilutive this issuance was. My guesstimate, without the benefit of more and stronger coffee, is that residual value of the $1.03 issue price (which is the implied share value) will be around 65 cents. If premarket stays above $1.00, this is a money machine for the investors. Of course, screwing over small biotech companies is a Rodman & Renshaw specialty. Selling the warrants on a "when issued" basis and shorting the stock against delivery of new shares at the close seems like a no-brainer for the institutions lucky enough to have gotten in on this deal. |
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Post by anderson on May 10, 2016 8:31:29 GMT -5
Hmm did anyone notice
"Pursuant to the Purchase Agreement, until such time as no A warrants remain outstanding, the Purchasers that hold A warrants will have the right to subscribe for, in the aggregate, up to 50% of any common stock or common stock equivalents we issue in the future, other than pursuant to an Exempt Issuance or the ATM Agreement, on the same terms provided to other investors in the transaction. "
That has to be worth something.
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