RSH: Additional thoughts, and comparison to another real world deal:
Several people have already drawn the conclusion that since there will be rights offered for additional shares @ .40, that may serve as a ceiling for the current outstanding RSH shares.
A real world example of why that is not the case is shown in the Sirius/XM rescue deal. Back in early 2009, with Sirius on the brink of bankruptcy, John Malone of Liberty Media provided Sirius with a loan of about half a billion dollars that they badly needed to avoid defaulting on their obligations (and filing for Chap 11 BK). As part of that rescue deal, Sirius had to sign over about 40% of the company (in the form of convertible preferred shares). The cost basis of that 40% stake in Sirius was zero per share. Liberty was given a large, free stake in the company, in exchange for providing the huge, desperately needed loan.
So if the cost of that 40% stake that Liberty Media received was the determining factor in valuing the outstanding common shares of Sirius at the time, the stock would not have jumped upward immediately following the deal. As a matter of fact, within the same calendar year that the deal was struck, the stock recovered from a low of about .05 to more than .50 (a tenfold increase from the bottom).
A fundamental difference here is that Liberty Media did not receive a majority stake in the company, and therefore had to buy additional common shares to eventually achieve a majority ownership. But, overall, based upon the history described above, I do expect there to be a profitable exit point for RSH in the near future.
As always, simply my opinion.
RSH
AI
