11,5m warrants @ 2,25$ will probably cease worthless (!)
LPH still has 11,5m warrants outstanding held by preferred shares holder which are counted to fully diluted share count of 113m shares.
However these warrants have conversion price of 2,255$ and are valid till October 2012.
I do not expect the price will go higher than 2,255$ until then, what means these warrants will CEASE WORTHLESS (nobody will convert @ 2,255$ if the market price is lower at the same time) thus the fully diluted shares will drop from 113m shares to 101,5m shares in October 2012.
The warrants give also guarantee that there will be no further dilution below 2,25$ till October 2012, because as was stated in 10k in Nvember 2009 financing conditions (warrants and preferred shares prospectus):
"The Warrants are exercisable for a term of three years at an exercise price of $2.255 per share. The Warrants also contain anti-dilution provisions, including but not limited to, if the Company issues shares of its common stock at less than the then existing conversion price, the conversion price of the Warrants will automatically be reduced to such lower price and the number of shares to be issued upon exercise will be proportionately increased."
1. The warrants have to be eliminated. Two virtual conferences ago, Toups mentioned that the board was considering tactics to remove the warrants. That may still be a possibility. Fidelity and other funds may be buying in to take advantage of the ceiling that the overhang provides. If lph buys out the warrants, then we know the big guys are in.
Once the acquisition is complete and Haujie starts contributing to bottom line, that may be the next best use for their free cash flow. There aren't many things they can do to influence the pps, but that would be one of them.
If you believe the company forecast they would have done about 900 mill in revs with 100 mil profit by then if this stock isnt above 2.255 by then that would surprise me. I think all warrants will all be exercised but we will see.
I assume they start their operations in new facility since january 2012. Considering ramp up period I assume only 150-160m in sales in FY2012 and 15-20m$ net profit so this gives total sales of 720m$ and net profit of app. 93m$ = 0,92 eps.
Many chinese stocks currently trade at 1,5-2 P/E so 2,25$ would be LPH overvaluation:) (smile)
The antidilution provision doesn't prevent the company from issuing shares before October 2012, but it will create additional shares to be represented by said warrants in proportion to the extent to which PPS of the share issuance is less than 2.25.
So if they issued shares at 1.125, then each of the outstanding warrants would then automatically be increased to two warrants instead of one. This protects warrant holders but would INCREASE the dilution upon redemption by a factor of two for the common shareholders - we would be talking DOUBLE the dilution from October 2009 financing, not good for shareholders.