Thanks, I am no expert on preferred shares, but these are my thoughts, take it FWIW, which is probably not so much.
They are setting aside 200,000 shares of the already authorized preferred stock for potential sale or distribution. As of September 30, no preferred shares were issued.
The liquidation value is set at $81. If the shares are sold at $81 then that's roughly equal to the conversion rate of the current common share price times 1000. The conversion at 1000 per share seems high, but the real effect on ownership for us depends on how much they bring in for each share.
Apparently the company wants to raise capital by issuing preferred shares. If they sold common shares to raise capital it would be instantly dilutive. If they get a good price for the preferred shares, and we have to hope that's as close to $81 a share as possible, then it won't be dilutive to the common shares for some time, and with restriction on how much per month once it did.
Also, preferred shareholders could choose not to convert, if they prefer the dividend.
We don't know when the company plans to sell any of these shares, and they may just be designating shares for some future sale. Also, I assume they might only be interested in selling some portion of the 200,000 designated, as the need may be. Such as, an opportunity to buy another submarine cable operation, and how much they need for the purchase.
The company appears to have done very well so far in converting a small amount of capital into huge revenue returns. If this holds then money raised from the preferred sale could pay for itself at least in theory. You lose a bit of ownership, but maybe the company goes from $42m in revenue to $100m or $400m or such.
Preferred dividends will get paid out over common, lots of companies have preferred shares. I would "prefer" that the conversion option was not there but I don't think we have to automatically assume that all these shares are sold and if those that are sold, that they will all get converted. For all we know they might not ever all be issued, or might be issued over many years - the 8-K is just a designation, not a prospectus.
If we see a prospectus we need to look at it, and again, we don't know how many shares would actually get sold, even if the company offered the entire 200,000 shares. And then, we have to look at how much money was raised and what did they do with it? Does an acquisition it funded double the current revenues for example?
Or maybe some of these shares go to settle off any remaining liabilities, which is potentially dilutive, but provides benefits to us as well, like less interest expenses, thus adding to net income potential. Last quarter interest expense was $913,592.
Bottom line is, IMO, my uninformed opinion, there is no reason to feel like millions of shares just got added all the sudden. Maybe some will, maybe quite a few, but right now I don't see it all happening real soon, and we likely get something of hopefully greater value in return. You either trust the company is charting a course that will enrich shareholders or not, but being that they report substantial revenues, appear to be close to profitability, and aspire to list on a major exchange, then these things all are better served for companies that add value to those that hold the common stock.
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