Originally Posted by Big E
(Post 18146939)
(sigh) You guys really don't know much about stocks, do you?
1) They sold 5M shares (out of 26.72M), so about 20% of the company.
2) Those shares can go to zero, and it would not "affect" the company - you don't go automatically BK when your share price goes to zero.
3) When the stock price gets low enough (let's say $0.50/share), they could buy them all outstanding shares back for $2.5M and take it private (if they wanted). BOOM! They just "washed" their company from private to public back to private and made $47.5M (minus fees) from all those sucker investors.
4) The only people who "lose" money are all the idiots who bought the shares and sold them for a lower value.
5) As others have said, they HAD to do this deal to try and lower their debt - their interest costs are crushing.
IMO, they're fucked. Unless they can cut costs or dramatically increase profitable sales, they're still losing money every quarter/every year. They are in a slow death spiral.
They're not going to be able to go back to the stock market (obviously), and the reason they went to stock market in the first place is because they can't get credit from any bank.
The next thing you're going to see from them is to start selling assets, presumably the least profitable segments of the business first.. whichever those may be - I suspect Penthouse goes on the chopping block first, but who knows.. they may ride the whole thing down until it crashes.
Ironically, they ALMOST pulled it off. Basically, when you IPO, you're either growing SO FAST that you can't tranditional financing (i.e. banks) because banks don't loan on "potential" (that's what the stock market is for), OR.. you can't get traditional financing because the banks don't like your numbers/business model/whatever.
So you go to the IPO market, and hope you can find a bunch of dipshits who will buy your stock and allow you to pay off the debt you accumulated.
So, had FFN been able to get out of the gate in 2007/2008 right before the market crashed, and assuming they could have sold $460M of IPO, they would have "transfered" the debt to all the idiots who bought that IPO.
Sure, the stock would have taken a massive hit, but fuck it, what do they care? They wiped the debt, they've got an extra $75M/year (that went to interest) to add straight to the bottom line.
It was a ballsy strategy (but a very common one - google: "leveraged buyout" or LBO) but they just missed on the timing, and it will end up costing them the company me thinks..
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