Warrants will not cause a wave of selling plus an M&A theoryThe conjecture around the warrants that expire in January 2017 is out of control. Someone or a group of investors are clearly trying to scare investors into selling their shares because there is a wall of warrants to be exercised that are going to drive the stock down, which is silly talk.
Below is a summary of what you need to know about the 68.4mm warrants at 20c that expire in January 2017 (gross number of warrants, some have already been exercised). Also included is a compelling theory as to why AVK might be very close to being bought out that is tied to why these warrants have not yet been accelerated.
1) 54mm (80% of 68.4mm) are controlled by super gold bug Paul Singer of Elliott Management. Paul Singer / Elliott is collectively AVK's largest shareholder (~60%) and a co-founder of the Company with Chairman's family trust. Elliott manages over US$25 billion, has never sold a share, has been the largest investor at each round of financing, with over US$40mm invested to date. Elliott is not a seller and if they were, they would have to file on SEDI because they own more than 10%, which makes them "insiders" under TSX rules (which plays into the M&A theory below).
2) 7.8mm (11%) of 68.4mm) are controlled by Lloyd Miller III, a billionaire in West Palm Beach. He should not have any problems writing a C$1.56mm cheque to exercise his warrants.
3) Almost all of the remaining 20c warrants are controlled by a heavy weight investor who cleaned them up in Q2 as "off market" transaction so that they wouldn't hit the market as some pundits are suggesting on this board.
4) All of the outstanding 20c warrants have an acceleration clause that means that the Company can call the warrants with 30 days notice. The 20d VWAP of 30c trigger for the acceleration occurred in May. AVK has not yet accelerate the warrants.
Why hasn't the company accelerated the warrants yet?
Great question – company says that because these warrants are in the hands of a small group of friendly long term investors that they know well and they will voluntarily exercise warrants as the company needs money rather than demanding they exercise them.
FWIW, I was part of a group of shareholders that helped the stock trade higher and acheive the VWAP necessary to trigger the warrant acceleration in May. I am continually disappointed that the company did not accelerate the warrants as this would add more than C$13mm to the balance sheet and remove the perception that the company is broke and that there is a near term financing.
A possible explanation for the real reason why the warrants haven't been accelerated is that AVK is in the advanced stages of talks to be acquired! Rationale: Elliott owns 60% of Avnel, so they will be involved in any merger / acquisition discussions. If Elliott is in possession of material insider information, like a pending deal, they cannot trade AVK stock, including exercising warrants. It is highly unlikely that company would accelerate the warrants if Elliott cannot exercise.
Given that AVK is down to US$1.2mm in working capital as of the end of Q2 the warrants will either need to be exercised soon or an M&A transaction will be announced. Either way, a win-win situation for patient AVK investors, who will know that this company usually waits to the last possible moment to announce its news.
Buy low, sell high - don't get tricked into selling low on low volume so that someone else can buy low and sell high on high volume! Just look at AVK's chart - this has been a winning trading strategy!