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DragonWave Inc. Message Board

  • nattok nattok Sep 17, 2013 11:50 PM Flag

    Dragonwave offering - The back story

    The secondary offering should be seen for what it is: enriching new shareholders at the expense of the current shareholders. The new shareholders will get current shares and future warrants to be exercised at a particular price.

    The timing is key here: Two earnings calls ago, we were told profitability is a couple of quarters away. At the last earning call, the same line was repeated. It can be reasonably assumed we are finally very close to the net profit goal which this company has long worked towards. Now, at this point, when there are documented orders from multiple telcos in India, a huge multi-year ramp-up from Sprint/Clearwire, and demonstrated bids and RFXs from around the globe, Dragonwave chooses to do a secondary offering?! Why could this not have been held off for a month, by when the earnings report of October would have quantified the revenues from the above mentioned channels? The share price would have reflected those additional revenues (and potentially profitability as well) and the higher PPS could then have been the basis of an offering. If working capital issue was an issue, the company could have easily tapped it's existing line of credit or simply opened a new one. The scale of the offering here ($80 million at the time of the shelf) completely dwarfs their current WC requirements.

    No, the specific intent here is to #$%$ away the gains from the existing shareholders and distribute it to new shareholders. Obviously, the question is at what price that would be done? In no rational scenario would it be anywhere close to current prices. (The Dragonwave management and advisors are setting themselves up for a world of hurt if they would even consider such a stunt!). Obviously, the pricing would have to be much higher than current prices.
    As an example, the NSN stake pricing a couple of years ago was based on the closing price for a month or two, and from my recollection it was in the low $3's. This method of average closing pps was employed for

    Sentiment: Strong Buy

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    • utter nonsense - I would advice each and everyone to listen to the latest conference call replay from July. Management gave detailed cash burn projections for the current quarter and was pretty clear about cash break-even still being several quarters away with no time frame to be given.

      and while revenues and gross margins might indeed move up somewhat going forward they will be nowhere close to the levels necessary to reach just cash break-even.

      moreover current FY14 analyst estimates are looking for revenues above $160 mln which looks illusive at this point at least to me

      with regards to the credit line:

      this is an asset based facility which is currently fully drawn - the maximum amount of $25 mln applies only when certain asset classes increase which simply hasn't been the case

      so this offering had to be done at any price or condition potential investors might have demanded as otherwise the company would have faced chapter 11 before the end of 2013. There's also no demand for Dragonwave shares like nattok insists - the weak pricing and the upsized amount of warrants clearly demonstrate the problems Canaccord had to find at least some investors.

      so don't get fooled here - this is no conspiracy - this is just a poorly performing company trying to escape bankruptcy.

    • 3 of 3

      As some of you may know, I have longstanding beef with this management about similar tricks that they have tried in the past. There are many angles to pursue in this most recent attempt, and we are taking note! Please note that the company future is sound, any legal action would only impact those that have a fiduciary role at Dragonwave. It would not fundamentally change the outlook or prospects of DRWI.

      For the common investor, here is my opinion:
      The fair value of DRWI is much higher than the currently artificially depressed prices. The traders have already executed half of their strategy by taking down the price and shaking out the weak hands. The remaining half of the strategy will be to ramp up the price and trigger all the stop-loss sell orders on the way up. Make no mistake: there is a strong appetite for DRWI shares by the smart money, and they would like nothing better than for you to give up yours. This is the time to remove your stop-loss orders out so they can't be triggered. Also, these are just great prices to start or add to a position. With the next two earnings calls (the first less than a month away) the PPS will be much higher. Don't let them steal your shares! Take care...

    • 2 of 3

      As an example, the NSN stake pricing a couple of years ago was based on the closing price for a month or two, and from my recollection it was in the low $3's. This method of average closing pps was employed for another acquisition by Dragonwave earlier, so we have ample precedence. If the same method is used here, the problem is that the company's flip-flopping has damaged (tainted) the price in the short-term. We were first told that the pricing would be announced on the 13th, now it has been moved out further. In the meantime, the uncertainty has allowed the traders to drive this down and shake the weak hands. Who will be held accountable for this?

      Also, very curiously, the number of warrants offered has increased. Since the pricing had not yet been set, management could simply have changed the pricing rather than announce additional warrants. The problem with announcing additional warrants is that it creates the appearance of additional dilution (which may or may not be true depending on what the pricing is), and therefore a convenient way to hammer away at the common shareholder.

      Make no mistake: Dragonwave and the financial institutions in cahoots have been paying close attention to the 'real' quantity of shares that are being gouged from the small investor, and are using that information to decide on the volume and price the offering.

      Sentiment: Strong Buy

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