MSGI re VPHM:
I think the sales number is absolutely terrific.
With regard to the convertibles, I assume that anyone electing to convert now must be interested in selling now -- or wants to be positioned so as to be able to sell very promptly. The conversions described in today's 8-K (i.e., the conversions occurring on May 24-26) undoubtedly account for a lot of the selling that took place last week, and may account for some of the selling today. But I don't think any of the selling today was a market reaction to the 8-K. I get SEC alerts by email direct from the company, and news of the 8-K filing was emailed to me after the close.
Incidentally, the company can force a conversion of up to 25% in any calendar quarter under certain conditions. From the latest 10-Q:
"Subject to certain limitations, the senior convertible notes are convertible into shares of common stock at the option of the holder at any time prior to maturity at a conversion rate of $2.50 per share, subject to adjustment upon certain events. The Company may elect to automatically convert in any calendar quarter up to twenty-five percent of the principal amount of the senior convertible notes into shares of its common stock if the daily volume weighted average price of the Company’s stock exceeds $3.75 per share, subject to adjustment upon certain events, for 20 trading days during any 30 trading day period, ending within 5 days of the notice of automatic conversion. If the investors voluntarily convert the senior convertible notes or if the Company effects an auto-conversion of the senior convertible notes prior to October 18, 2007, then the Company will make an additional payment on the principal amount converted equal to three full years of interest, less any interest actually paid or provided for prior to the conversion date. In the case of a voluntary conversion by the investors, the Company must make this payment in cash. If the Company effects an auto-conversion, the Company may, at its option and if certain conditions are satisfied, make the additional payment with shares of its common stock. . . ."
My guess (and sincere hope) is that the company will exercise this right of automatic conversion to the fullest extent permitted, and that about 20 trading days or so from today the option to auto-convert 25% in Q2 will be available. My assumption is that, if/whenever the company auto-converts, it will pay the make-whole interest payment with stock.
The 8-K today is not news, except insofar as it explains who some of the sellers probably were last week and today. The earnings we have been discussing are fully diluted. Frankly, I for one would like to see as much of this overhang converted as soon as possible. Once the debt is converted, the former noteholders, now common shareholders, will face the same difficult sell decision that I think everyone is going to have in this stock, and I don't care what they decide to do. I just want to be rid of those (i.e., the current noteholders) that are free to speculate on the stock, assured of a guaranteed rate of return. Right now they are a very real deterrent to those who would purchase the stock, a deterrent that cannot be quantified. If conversion creates selling pressure, so be it. I think the fundamentals are going to be very powerful -- can absorb the converted shares -- and I am not looking to exit this stock any time soon.
All IMHO and FWIW.
Steve
