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Exelixis, Inc. Message Board

  • nomad_celcius12 nomad_celcius12 Jan 14, 2013 11:22 AM Flag

    Número UNO reason why EXEL remains near its lows

    While the HEDGE FUND LACKEYS are hard at work on this board pounding the table as to why Joe Q. Sixpack should be buying (when in reality the hedge fund is SHORTING), people remain clueless as to why the short interest keeps climbing and they continue to take the bait of the hedge fund lackeys ("i.e. "buysignalinvestments"). A 5 year old can understand why EXEL cannot and will not move higher for the foreseeable future...in other words, it will remain "dead money":

    "This deal is very similar to an equity offering with warrants attached. It's just a pig with a different type of lipstick. Warrants are "sweeteners" in financing deals. In the case of the Exelixis financing, the convertible arm was a "sweetener" in lieu of warrants. Why are they called "sweeteners"? Because an investor can use the common equity portion of the deal to finance a portion or all of the warrants/convertible arm.

    In the case of common equity and warrant deals, you'll often see a fund take down, let's say, 5 million shares of XYZ common stock, and, also be apportioned 0.5 warrants for every common share. Oftentimes, a few weeks later, when the 13F filings come out at the end of the quarter, you'll notice that very same fund owns absolutely no shares of the common stock, despite the stock having barely moved. How is this possible? Because the fund likely used the common shares in a short position to pay for the warrants, making the warrant arm of the trade almost risk-free, or reduce the cost of the warrants greatly.

    Let's take a closer look at what investors in the Exelixis financing are likely doing: A hedge fund buys Exelixis common stock, in size, at $4.25 per share and has the ability to own more stock at $5.31 per share at some point in the future with the convertible arm. Therefore, any time Exelixis' stock price rises above $4.25 by a reasonable amount, the hedge fund can short the stock and use profits from that short sale to pay for the convertible stock.

    For instance, days, weeks or months later, if Exelixis' stock is trading at $5.50 and the hedge fund bought 10 million shares in the financing deal, it could short 10 million shares and "arbitrage" the profits. [Since the hedge fund owns 10 million shares at $4.25, it profits from the cost basis of the short versus its long position received in the deal at $4.25.] The fund then takes those profits and uses them to pay for the convertible arm in full, or reduces the cost basis of the convertible.

    Why do this? Easy, it's almost like free money. Furthermore, if an investor thinks Exelixis' cancer drug cabozantinib is going to be a billion-dollar blockbuster drug, then owning the stock at $5.31 -- or lower, cost-basis adjusted -- is a no brainer. And, if investors can get convertible shares for free, it's even better.

    When a company raises money through an equity sale with warrant or convertible notes as a sweetener, investors who aren't lucky enough to participate should run away from the stock - fast."

    This, folks, is the #1 reason why EXEL will not be going anywhere anytime soon. This, folks, is the sort of thing buysignalinvestments et. Al. Do not want you to know. Well, now ya know :-)

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