Sooo...
How will the mechanics of the exercise work... is a first question I'd have.
Can you complete the offering using cash while directing that the transaction be completed through your broker... or, will it require writing them a check directly ?
What about the exercise of the over-allotment ? How will the mechanics of that work ? How do you put in your order ?
Seems it will require that there will be some price arbitrage that occurs... and that likely will tend to move the share price down closer to the $0.70 offering price before the March 29 record date, minus... how many days ?
How much of that will you actually see ? Obviously, if they'd priced the offering at say, $0.02 a share... then you might see people bidding the share price up now... competing to gain the right to buy shares at $0.02. I don't expect you'll see that happening... with the price set at $0.70... and with the risk factor in the uncertain holding period in the preferred.
No reason to hold onto your old shares, if you bought them, say, for $1... when you can sell SOME of them now for $1, and then use the cash from that sale to buy back the new ones for only $0.70 each ?
Volume since the deal was announced... doesn't show that many planning on selling half now to pay for buying half back at $0.70?
If the price doesn't dip a bit more toward $0.70... and you see it holding steady or a bit higher... then, either people aren't planning on selling shares they hold now to enable participating in the offer... so they're holding what they have rather than selling because they don't want to be locked into the deal... or, they're planning on using new $ to participate in the deal, and they don't want to reduce their opportunity to participate by selling that portion of what they already have.
If we see buying... meaning people are willing to pay more for a share now... to also buy the right to buy more shares at $0.70... that will probably be a decent indication of decent strength.
Will make perfect sense for some people to sell at least that number of shares held now that they can, so that it ensures they can take the profits they can now, and still reconstitute exactly the SAME holding... only at the lower average price per share that the option allows. Your new average price will end up being the average between whatever you paid for your initial 250 +, and the $0.70 you pay for whatever number of "replacements" you'll be able to buy in the offering.
If demand is strong enough... you likely won't be able to get very many more at $0.70 than the number proportionally allocated for what you hold before Mar 29. If demand proves weak... then you may end up able to exercise the option in over-allotment, and you might end up getting quite a few more shares at the $0.70 price than you think... particularly if there are some bad days in the market between now and the end of April.
So, what's likely to happen in April ?
There will be a couple of other impacts of the offering, some of which you can see happening already just reading through the posts here... as those who aren't "investors" won't be willing to take on the holding risk inherent in being issued the illiquid preferred shares. So, one impact of the offering will be to skew the composition of the base in holders from "traders" to "investors"... and that likely is one of the reasons for doing an offer that is structured like this one is... to solidify your existing shareholder base with solid "holders".
Unlike what others have suggested... I think the pricing of the deal appears that it virtually ensures that the listing risk evaporates along with successful completion of the deal... and, along with that, the incentive to play trading games with the price point goes away... so the overly typical market fight over the $1 price point becomes basically irrelevant.
One the one hand, they'll change their capital structure and improve their position with an decent increase in capital, and they'll pay down debt some more... improving overall and per share performance...
The average price per common share in the deal is $0.70, but, the single share of preferred is $140... so the average... [($0.70 x 200)+ ($140 x 1)]/201 = $1.39 in capital per actual share... with the company controlling whether or not and when the preferred are able to be converted... ? Listing risk... gone.
Shorts won't have as much incentive to play in the future, since the listing won't be able to be put at risk, so it won't be available as a point of leverage in the market... and, any shorts that are still out now would end up being forced to match the $0.70 price in the offer... but, also, they have a short fuze on that clock ticking on covering before they incur the obligation?
I think it's a compelling deal...
They're not pulling the rug out from under their existing investors... rather than giving their existing investors an opportunity to participate in a good deal... while investors participation will help to make their existing investment a much stronger holding.
Of course, you still have to evaluate the risks... and how they'll change relative to your interest...
I'll be looking closely now to see if there are any hints floating around about the uses of capital they're looking at.
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