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American Capital, Ltd. Message Board

  • ajcorlett ajcorlett Jun 16, 2009 4:50 PM Flag

    What is the intrinsic value of ACAS

    Forget what price it will actually trade what do people think the intrinsic value of ACAS as a company is? Please explain your reasons and give a basis for your ideas.

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    • Thought I suppose they could issue 320 shares at $0.00 per share cost basis and that would be a gain of $960 or 96 cents per share. Anyway, the point is, 96 cents per share needs to be distributed as a gain on paper.

    • I doubt that I was the only one asking the questions about ACAS. But I have been through that many times. And yes, they do listen and try to understand the questions. I have raised questions that they have answered satisfactorily - as they did on ACAS. And I have failed to influence them as I did in the HBC rights offering. That hurt some puts writers including me. But no complaints since I kept the shares put to me.

      You treat a stock dividend as if it is different than a stock split. There are technical differences but no significant economic differences to the stock holder.

      zip

    • Everyone wants to buy after the ex-div. date to avoid taxes,,


      At the same time , people here say the price will drop after the ex date , but I don't think so.

      I beleive this is the cheaper price for ACAS right now...

      Some are going to get fooled at thinking they can buy in cheaper.

      Collect the Div. , is what I say.

      Reinvest the Div. into stock

    • I don't know why but it does.

    • oh, I see, you taught the occ a lesson, hm.

      but it is not a stock split!! nothing could be farther from the truth! If at all, you could compare it to a rights issue.

      That being said, I do not count on a panic buying spree by the shorts to get some 9 miilion additional shares. i only say it will make for interesting two weeks in August at a minimum. Currently, i see rather confused selling by longs who try to avoid the dividend (and quite a number of them might plan to buy the stocks back later on). Though I can understand the rationale behind the move, I doubt that it will turn out to be a successful "trade".

    • >>the broker cannot just borrow those 300 from A, because A doesn't have them yet!

      You are treating the stock dividend as if it ONLY happens on one side of the transaction. It happens on both sides. The short who borrows 100 shares of ACAS before the distribution on the ex-date is charged for another 30 (to illustrate) and now owes 130 shares. The long gets additional shares.

      Admittedly it is more complex but brokers can handle that by replacing ACAS with a descriptor (often some number) to indicate the ex-div date shares. Once the distribution is made we will be back to shares.

      Let's see if we start seeing buying of the 9M shares tomorrow that your view suggests will be necessary. But don't hold your breath.

      zip

    • >>he either borrows more from some other client, so you are then short more shares,. in that case, it may just appear to you as a pure book entry.

      Yep.

      >>Problem is, that the broker may have condierable difficulties in getting these additional shares borrowed from other clients as you will be one short seller among thousands.

      What you do not get is it is the same shares - they just increased in numbers over night. Simple case - a 2 for 1 split. One day you own 100 shares and after the split you own 200. Or one day you are short 100 shares and after the split you are short 200 shares. It is just a book entry.

      Admittedly, this one is more complex. But I see no reason it will not follow the normal process. Even OCC finally got it right after I was asking the key questions.

      zip

    • sorry, you have no idea how this works.
      say, your broker has 10 accounts.among those ten, one (A) holds 1000 acas shares and another one (B) has shorted 1000.

      All other accounts hold no shares of acas. Come dividend payment date, 90% in stock, at, say 30 shares for 100 held. and about 10 cents in cash.
      B's account will be debited the cash amount for the shares AND it will be debited 300 shares. the broker cannot just borrow those 300 from A, because A doesn't have them yet! He could borrow them two days later, but NOT at the dividend payment date! So the broker can either talk to his contacts (other banks and brokers) to get additional shares. Or else he will send you a buy-in notice. that means, he will offer you the choice that either you buy the required 300 shares or he will do so for you - at your cost.
      Just try it, sell short 100 acas and watch and learn.

    • again, it's not a stock split. the closest it comes to is a rights issue. the point is that all the additional shares go entirely to the existing shareholders. The shorts end up owing more shares than before and they either have to borrow those, additionally in the market, or else they have to buy them, if they can't find enough of them available for borrowing. It#s simple as that.
      Of course, if myriads od acas shareholders immediately sell their shares for cash, then shorts will have little problems to buy in. However, I seriously doubt that this will happen on such a large scale. I for my part see no reason to sell a single of my "dividend shares" at these prices. If there was a reason to exit the stock, i would sell right ahead of the dividend. But certainly not AFTER it - it simnply doesn't make any sense, from a taxation point of view. I think the current weakness of the stock is precisely due to longs exiting the stock to avoid the dividend in the hope/expectation/conviction to buy them back later at the same or lower prices. I doubt that it will play out that way, though...

    • "Nope. There is no requirement to deliver anything on Aug 10.

      The guy you sold the borrowed shares to will get the share dividend. The guy you borrowed from will have a book entry saying he has more shares now, and the short-seller will have a book entry saying he has borrowed more shares now."

      I seriously doubt that you have ever really sold short a single share in your life.
      When the dividend gets credited to the holders of common stock, they get paid out by the company. In case that you shorted shares your account gets debited by the respective amount. Usually, this is a pure cash transaction, as dividends usually are paid out in cash. Still, it is not just some future liability on your brokerage account. it gets recognized and deucted immediately at the dividend payment date.
      So obviously, the same will happen with a dividend paid partially in stock. Difference is, they can't deduct cash from your account for sthe stock portion. the broker now has two options: he either borrows more from some other client, so you are then short more shares,. in that case, it may just appear to you as a pure book entry. Problem is, that the broker may have condierable difficulties in getting these additional shares borrowed from other clients as you will be one short seller among thousands. That could lead him to option two: he just buys the required (additional) shares at the open market (partial or total buy-in) and debits your amount by the amount he had to pay. If you don't believe me, go ahead and short a 100 shares ...

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