Chessmite’s questions on Reverse split: After n
Post# of 22456
Posted On: 12/14/2016 12:39:34 PM
Chessmite’s questions on Reverse split:
I like the first two questions for Craig, but offer up the following to illustrate my views on the third issue. Somewhat exaggerating, using bigger number ($12) than realistic, to make my point more obvious.
Share price $0.10; O/S 420 million; A/S 600 million
Market value of QMC is $42,000,000
Contract announcements, share price rises organically to $1.00
Reverse split 1 for 6, moved to NASDAQ.
Share price $6.00; O/S 70 million; A/S 100 million
Market value of QMC is $420,000,000
An institution wants to buy 30 million shares (yea!!).
Institution can buy on the open market (NASDAQ), but share price is not going to stay at $6.00 since they are trying to by 42% of the outstanding shares.
So institution goes to QMC and asks to have company issue 30 million shares so they can buy them in private placement.
QMC management agrees but sets the price at $12 per share, no reason to give them a bargain.
If the they don’t agree, the institution starts buying up 42% of the outstanding shares on the open market. Share price is not going to stay at $6 for long.
If they do agree, then:
O/S 100 million; A/S 100 million
QMC gets $360,000,000 in cash. Institution just bought 30% of the company, their “share” of the $360,000,000 cash that they just paid to QMC is $108,000,000. The other $252,000,000 is “shared” by the other current shareholders (that includes you) that hold the other 70 million shares, currently worth $6 per share on the open market. Now, the “value” of each of those $6 shares owned by the current shareholders, just went up by $3.60 ($252 million/70 million) due to the new cash in the company’s bank account. Therefore, the share price on open market should go from $6 to about $9.60, a 60% gain for the current shareholders. The new shareholders, the institution that paid $12 per share, now also owns shares worth $9.60 on the open market, a 20% loss for them. So the institution must believe that much higher revenues are coming that will drive the price much higher. As a current shareholder, I just got “diluted”, but it looks like money in the bank for me and my fellow shareholders.
At that point in time, if there is another institution or two that also want to buy shares directly from QMC, then QMC has to say no because there are no more authorized and unissued shares, unless the shareholders approve an increase in the A/S. If institutions are begging to get in, then I would probably vote yes to allow QMC to rinse and repeat with more institutions.
Quote:
After news of contract/revenues;
1. How much time will you allow, before considering a RS?
2. Do you have a price point in mind to implement said RS?
3. The fear is after the AS to 600M, there will be a RS; then Demand for shares, (say in 5M -30M Blocks) from Financial Institutions will require another AS, (maybe right back to the 601M) to meet that Demand.
That may meet the need of Financial Institutions and QMC, but how exactly would that help the common sh?
Their shares and net percentage of ownership of the company would definitely be less at that point.
I like the first two questions for Craig, but offer up the following to illustrate my views on the third issue. Somewhat exaggerating, using bigger number ($12) than realistic, to make my point more obvious.
Share price $0.10; O/S 420 million; A/S 600 million
Market value of QMC is $42,000,000
Contract announcements, share price rises organically to $1.00
Reverse split 1 for 6, moved to NASDAQ.
Share price $6.00; O/S 70 million; A/S 100 million
Market value of QMC is $420,000,000
An institution wants to buy 30 million shares (yea!!).
Institution can buy on the open market (NASDAQ), but share price is not going to stay at $6.00 since they are trying to by 42% of the outstanding shares.
So institution goes to QMC and asks to have company issue 30 million shares so they can buy them in private placement.
QMC management agrees but sets the price at $12 per share, no reason to give them a bargain.
If the they don’t agree, the institution starts buying up 42% of the outstanding shares on the open market. Share price is not going to stay at $6 for long.
If they do agree, then:
O/S 100 million; A/S 100 million
QMC gets $360,000,000 in cash. Institution just bought 30% of the company, their “share” of the $360,000,000 cash that they just paid to QMC is $108,000,000. The other $252,000,000 is “shared” by the other current shareholders (that includes you) that hold the other 70 million shares, currently worth $6 per share on the open market. Now, the “value” of each of those $6 shares owned by the current shareholders, just went up by $3.60 ($252 million/70 million) due to the new cash in the company’s bank account. Therefore, the share price on open market should go from $6 to about $9.60, a 60% gain for the current shareholders. The new shareholders, the institution that paid $12 per share, now also owns shares worth $9.60 on the open market, a 20% loss for them. So the institution must believe that much higher revenues are coming that will drive the price much higher. As a current shareholder, I just got “diluted”, but it looks like money in the bank for me and my fellow shareholders.
At that point in time, if there is another institution or two that also want to buy shares directly from QMC, then QMC has to say no because there are no more authorized and unissued shares, unless the shareholders approve an increase in the A/S. If institutions are begging to get in, then I would probably vote yes to allow QMC to rinse and repeat with more institutions.
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