I've been thinking about that large trade on Friday in the early hours. It was definitely a pre-trade, whereby it was assembled by one entity to be passed to another. It would have been timed perfectly as to keep any equity buyers from getting any of the sum of the trade at the exchange price. WHY?
Well let's see..This stock is controlled because of two factors.
1. VWAP, they need it to stay in the range the purchasers of the preferreds want it to be, because they will increase the number of shares they acquire after the mandatory exchange is activated if it trades under the ceiling. They get more shares, this way, but increases the dilution factor upon the shareholders and increases KKR's position.
2. Once again it is the floor-ceiling language in the contract, it's in "black and white" that if it stays below the $2.25 average, they will be down at $1.75 PPS, but if it drifts above the ceiling and stays there for 20 days, the exchange is at $2.25 PPS, therefore decreasing the dilution to the existing shareholders and decreases KKR's position.
So, the question would be "who is controlling the stock?" If KKR wants to come into WMIH with the intent of further diluting the existing shareholders and therefore their interests by arranging to have the price hang below the ceiling for a 20 day average, then they have the leverage to do so.
I tend them to "tilt at the windmill" of the control being from those who want the ceiling exercised. If you look at what happened right after the announcement of this new funding, the stock went up 20% to $2.40 PPS and settled in at $2.20/$2.18.. 4 trading days into Jan, there was a very large 1.9 million trade executed the same way as friday. In Feb, the same thing happens 4 trading days in.. Coincidence? Lt. Columbo (for those who are old enough to remember) said "Sir..there are no coincidences."
"Because I don't like coincidence," Blunt replied. "In fact, I don't believe in coincidence. Where some
people see coincidence, I see conspiracy. That's my job.”
? Anthony Horowitz, Point Blank
What he means is, whoever is controlling the stock needs one of the two things to occur. Further dilution of existing shareholders or less dilution thereby increasing shareholder value.
I am going to say, I believe the latter, the best way to test this, is to look at the PPS of the next 20 days of trading on the VWAP. They (whoever is moving shares) has the power to make one or the other occur. This is a very controlled stock, it may be this way to keep it off the radar for now, but that all changes very very soon.
Those with large retail positions (Hedgies) do not want KKR increasing their position because of the floor language, therefore diluting their position, it is not in their best interests. KKR can not trade this stock, nor it or any of its affiliates short or hedge it until 2016. I am expecting the PPS to increase above the ceiling in Feb, going into March.
30 trading days left.
Cheers
Blue
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