Warrants entitle the buyer to purchase a given number of shares at a specified price, regardless of what the market price of the shares is. If the share price goes to, say, $60 per share. Spectrum must sell those shares at $14+ to the warrant holder; the warrant holder has a profit of $60 - $14+ per share.
I have no idea why the stock price did not take off after the clarification given this morning. Based on the details of this deal alone, I would expect it to go to $10.53 (minus interest outstanding, possibly). Must be something else (tax loss selling?).
I simplify the deal into two significant components:
1: Spectrum "bought" a 5-year put option at $10+ (i.e. the loan conversion).
2: Spectrum "sold" a 5-year call option at $14+ (i.e. the warrants).
Spectrum has an incentive to buy 9 million shares below the strike price of the put option.
If the share price in 5 years is below the strike price, Spectrum pays back the loan with stock.
If the share price is between the strike price of the put option and the strike price of the call option. Spectrum pays the loan in cash and the call option expires worthless.
If the share price exceeds the strike price of the call option, Spectrum issues the shares to satisfy the call option. Hopefully Spectrum bought many of those shares at about current share prices.
I suspect this deal was more about stabilizing the share price (bottom at $10+) than about raising working capital. The downside is the ability of the warrant holder to short stock against the warrants above the strike price of $14+ to lock in profits. Wonder how much they had to pay the investment bank to get this deal (I wouldn't lend money at 2.75% in this environment - why are they).
While I'm still positive on the stock based on its portfolio and pipeline, I don't share your enthusiasm for their recent financing moves. You think them entirely appropriate under the given conditions, I do not. We'll have to agree to disagree on this one. Always nice to have an exchange of views with you.
Why do they need 35 now people NOW? The portfolio did not change materially in the last few months.
Even if growth is coming, why does it have to be no credit? When you say aggressive growth, all I'm hearing is unnecessary risk; they do have the option slow down and self finance. Also, when did their strategy change from what was announced repeatedly and recently.
"Comments?"... Yep, but only few for polite society.
Either the CEO is working on the deal of the century, or he needs a brain transplant. He must have know what this transaction would do to the price of his shares - and I know he cares about the price of those.
Even if by some remote chance he is about to close on yet another deal, I'd much rather he focuses on what's already in the portfolio. It would be just reckless to expand even further at this time. And if he's not expanding, why does he need the additional cash. This is a total ambush by management. It is baffling, unnecessary and potentially self destructive. This just blows my mind - especially after all their protestations that there is no chance for further dilution.
Hope you're right tartiaboy. In the meantime the buyers have the warrants and are planning "hedging operations".
We've been lied to. Wait until the buyers start shorting stock against the warrants. This is disgusting.
Nice to hear from you again, Tartiaboy.
Off topic: I'm working on a spreadsheet detailing future revenues, expenses, profits and share prices. Would like to collaborate with you. Please let me know if you are interested. If so, I'll email you what I have so far. Please let me know.
All true. I'm concerned about a deteriorating balance sheet and negative cash flow. While optimism is warranted longer term; in the near term cash flow needs close attention if dilution is to be avoided. Hope KK & co. don't turn out to be empire builders.
"This company has potential, but Raj needs to go."
Raj is about 79 years old and has realized that his working life is coming to an end. That is why he has already hired his replacement. He's currently working as COO of the company and will presumably take over as CEO in the not too distant future.
My guess is that Raj is seeking vindication and will stick around until (a) the next three NDA's are approved and (b) revenue and the share price have recovered to last year's high's.
The ride from 17 to 9 was definitely not meaningless. We lost $8 per share. I would have preferred a slower but steadier rise without the Fusilev inventory bubble earlier this year. Still, the 12-18 months long case remains compelling (Belinostat, Melphalan, Apaziquone, ...).
I did make money on this stock over the years, but only by buying during the recurring panics this stock induces. That was harder and more irritating than it needed to be. Still, the current downturn is only the latest bout of hysteria on the way up. It will pass like all the others. No doubt there will be other equally temporary periods of woe in our future. Traders may make money here, but investors have the better shot (all just my opinion of course).
"I remain unenthused for SPPI"
You'll probably remain "unenthused" when the NDA is approved... and the next one is filed and accepted... and the next one is about to be filed... and we're making double the revenue and earnings to match. So... what does it take to "enthuse you?" ... Better yet, why are you here? Can't say I'm enthusiastic about you. Your motives are too transparent.