EZ chip wants to raise cash, LNOP doesn't want its ownership in EZchip to be diluted, so they will put in same amount of cash to equal their ownership percentage in EZchip. However, LNOP doesn't have enough cash to do this. Therefore, LNOP will offer a private placement to raise the cash, thus diluting our shares. This is a bummer, but almost to be anticipated with the current set-up.
Although LNOP has control share of EZ, they may not allowed to change that percentage without the consent of the minorty share holders. The simplest way to raise funds for EZ is kind of private IPO: everyone contributes their owner percentage of the required total if they want to keep their previous portion of ownership in EZ.
That means LNOP alone is not going raise $20M for EZ. Instead, LNOP will only need to make 57% contribution of the $20M. That's why I said a potential dilution of 10 to 13% to LNOP.
In this scenario, it's much easier for LNOP to raise $ than EZ going directly to the capital market because 1) LNOP is publicly traded 2) it may not need a complex process to adjust the ownership proportion of EZ amoung many share holders.
FIIALIR- [when i see your handle, my descrambler sees "IF-I-LIAR"] ;-D LOL (just kidding with you!)
Your point about "what happens if LNOP doesn't get this PIPE and EZ goes elsewhere?" is a good point.
Nobody can say. We all just have to wait until the details are completed, signed and reported. It is all up to management right now. But I am glad that management owns a lot of LNOP stock:
["Ownership � Insider and 5%+ Owners: 40%" according to Yahoo's Profile link http://biz.yahoo.com/p/L/LNOP.html ]
If you back out the largest institutional holder (ComSor, CMVT & Soros, etc), you get management owning nearly 30% of the LNOP shares outstanding.
It will definitely be interesting to see, whichever way this deal (if any) goes. Long or short, we're all in for an interesting near-future IMHO.
Hang on for the ride, up AND down!!!! ;-)
The good news appears to be that EZchip has 13 mil and needs significantly more money. Could this be for a rampup of inventory? What else could they need such a large amount of cash for when they have such a low burn rate?
The bad news...Why would an investor who could be invloved in a PIPE of LNOP do that rather than doing a PIPE in EZchip? Perhaps there is some legal reason or maybe some tax incentive but on the surface it just does not seem to make sense.
By defenition, they can't do a PIPE in EZchip.
PIPE = "Private Investment in PUBLIC Equity"
(like doing a secondary with only accredited investors rather than the public)
EZchip is not public, it is still private.
Some of the current owners my want to retain their current % holdings in EZChips (at least LNOP does and they are a greater than 50% holder so their vote wins)
... Wanting to retain the ownership percentage Bodes exceedingly well.
Dilution will occure, how much is based on the price per share the stock/PIPE is sold at. The higher the price, the less dilution.
The less dilution our stock, the less dilution for Managements LNOP holdings & vice versa.... so at least managements interests should be alligned with ours on this.
- A Long.
Re: We are being diluted... thats true but remember 2 items:
1) The amount of the dilution depends on what price per share is charged.
2) Management owns a far larger share of LNOP than all of us here, their shares are subject to the same dilution. Extrapolate this out, they feel retaining the same (greater than 50% ownership in EZChips for LNOP) is beneficial, EZChips must be progressing well.