Just to clarify their filing. They had just shy of 26 million shares going into this recent transaction. This is interesting because it means that they have not added materially since June as the stock sold off. They obviously just invested 125 million convertible at 3.74 per share. But that would mean another 33.4 million shares, and today, the company does not have authorization to issue more than an additional 16.2 million shares. So the terms of the convertible note say that the note is convertible into 16.2 million shares plus cash for the balance until such time as the company has authority to issue the full 33.4 million shares, at which point the note will be fully convertible for 33.4 million shares. So technically, today, Baupost owns 25.9 million plus 16.2 million or 42 million shares on a fully diluted basis (plus a cash conversion right on the balance of the shares) and as soon as the Kerx shareholders authorize the issuance of more shares, Baupost will own 25.9 million plus 33.4 million or 59.3 million shares on a fully diluted basis. The other interesting thing is that Bauposts basis before this trade was 13.60 per share. Their new basis after averaging down with the convert is 8.06 per share. That is the point from which they will be evaluating exit transactions. It is confusing but I hope this clarifies.
With the fully diluted issuance of another 33+ million shares, Baupost now owns nearly 45% of the company. It also has a board seat as well as board visitiation rights. Though it only has one of 8 board seats, does anyone believe that a board would not follow the directions of a board member who controls 45% of the outstanding shares -- including demands about holding management accountable? Whatever bet you were making before is now a bet on Seth and his ability to turn this ship. With a Board seat, Baupost loses its passive status and must update all transactions in the stock on a "timely" basis. All that drivel about Baupost shorting shares that we had to listen to for months will now be put to rest as a Board member is not allowed to short shares or hold a short position in the shares. This was a major move by Baupost that fundamentally changes the company and its prospects. None of it changes what the drug will do, but for sure the company will have a full opportunity to explore the CKD application without running out of cash. It is tough to accept dilution at these levels and the issuance of senior indebtedness, but given the stock price and capital needs, the terms of this issuance are not as onerous as they might have been , and this is really the best option for the company : issuance of shares to a loyal and patient investor who will not lend those shares to the market for shorts to cover. I had sold most of my position at various levels over the past few months but have bought a bunch of shares today.. I think this should move the shares higher and position the company with better leverage as it negotiates the EU partnership and as it looks to negotiate with other potential players following CKD approval. Tough but smart move by the company and very smart move by Baupost.. JMHO