The price of PLIM4 shares in Net, formerly Globo Cabo, fell more than 34% in only two days following the announcement of a 1-for-10 reverse stock split. Analysts say the plunge was due to a massive sell-off in the options market combined with the purchase of convertible debentures to take advantage of profit opportunities when more than 1 billion reals in new shares are issued. This is basically a speculative movement, analysts say, based on the following expectations: (1) the spot price is driven down by massive sales in the options market, plus bets that new shares will be issued at less than the market price; (2) convertible debentures are bought in the secondary market at discounts ranging from 8% to 10%. Besides guaranteeing a fixed income, the debentures can be converted into new shares in Net at a lower price, based on face value and in predetermined proportions. Speculators evidently expect Net to rally significantly when the restructuring is complete.
A senior source in Net fears unpleasant surprises for speculators after the new share issue. The third-quarter balance sheet will show a considerable improvement in the debt profile, the source predicts, and cash in hand boosted by as much as 300 million to 400m reals. ?The problem is the long line of suppliers, including manufacturers of set-tops and programmers. Perhaps most shocking of all is the amount of bonuses due to employees,? says the source. For equity analysts consulted Wednesday, June 19, the 1-for-10 reverse stock split won?t solve any problems and could even make them worse by causing confusion. ?Everyone is waiting to see the business plan and how the IPO will be priced, but instead the company just presents an accounting stratagem,? said an analyst with one of the most active brokerage houses in the segment. At a general meeting held Tuesday, June 18, Net shareholders approved a capital increase and issuance of up to 575 million shares (up to 233,034,000 common shares and 341,966,000 preferred). In addition, the meeting approved issuance of 86,250,000 preferred shares subject to demand as judged by the bank that will act as lead-manager and underwriter. The board of Globo S.A. will later determine price, exact numbers of shares to be issued, rules for subscription and payment, and other details required for filing with CVM, Brazil?s securities and exchange regulator.