Maybe this has something to do with it. At a $6.76 share price they would convert into 17M shares. June 1 is a few days before the pay out of the special dividend.
"As of December 31, 2012, we had $115.8 million of 4% convertible senior unsecured notes outstanding. These notes mature on June 1, 2013 unless earlier redeemed, repurchased or converted. The 4% convertible notes rank equal to all future senior unsecured debt. If the closing price of our common stock for at least 20 trading days in the 30 consecutive trading day period ending on the date one day prior to the date of a notice of redemption is greater than 140 percent of the applicable conversion price on the date of such notice, we, at our option, may redeem the 4% convertible notes in whole or in part, at a redemption price in cash equal to 100 percent of the principal amount of the 4% convertible notes to be redeemed, plus accrued interest, if any, to the redemption date."
"At a $6.76 share price they would convert into 17M shares. June 1 is a few days before the pay out of the special dividend."
Only the shares outstanding as of the record date (May 7) can participate in the dividend. In the case of an ex-date after the payment date, the only function of the record date is to establish that only the shares outstanding as of that date will get the dividend.
I am confused, and I hope you guys get the chance to ponder this.
My numbers may be slightly off, i am going to round them for ease.
Cash-equivalents-and short term invest = $195 mil
44 million shares outstanding
The convertible notes will mature on June 1st. If they are not converted, then they will have to retire that debt, leaving the company with about $80 mil. The vast majority of that will be paid out in the special dividend, leaving nothing but royalties and the patents left.
If for some reason, the holders of the convertible notes were to convert their notes to shares, they would receive at least 17 million shares, i am unsure of what the exact price will be but i think it will be less than 6.73 by then because of the current stock price, perhaps the number of shares may be a few million higher than 17 if the price is lower.
Anyways, if that happens, the company will turn that debt into an asset, and they will then have $310 mil and 61 million shares. Quick math = 5.08 per share before the special dividend. While that might result in a loss on paper for those who converted the shares, it significantly bumps up the value of the company for all shareholders, plus a sale of intellectual property is still on the table, and future royalty payments. I think the Former convertible note-holders would be in the money at that point. Just a thought.
Am I way off on any of this? If the note-holders were to convert, it would be an instant 50% upside, but I wonder if the new shares would be allowed to collect the special dividend payable on June 4.
Hi Wismom, I'm not very familiar with how convertible notes work. Can you elaborate on this please. Does this result in dilution? And furthermore, are you implying that the company is purposely driving the price down to redeem shares cheaper?