Ok! Ok! I know, I’ve been posting all kinds of crazy lately.
Did you guys see Pulp Fiction? Remember the scene where John Travolta is talking to that kid in the back of the car and his gun goes off and blows the kid’s head off? Then, they had to call in the Wolf to come clean the brain matter out the car? Yeah… that’s me. The kid who’s brains went everywhere.
Here’s the thing. I’m very concerned about the rather large decrease in institutional ownership during the first quarter. I’ve been focused on Susquehanna International Group, LLP and CVI Investments, Inc. because they seemed to be making the biggest moves lately and accounted for about 1/3 of the decrease in institutional ownership.
I won’t bore you with all the roads I went down, that looked promising and ultimately hit a snafu that blew the whole thing up. However, in my latest folly, I came across something simple, but may be very telling.
First, let me tackle this whole Susquehanna International Group, LLP and CVI Investments, Inc. thing. I posted something very confusing about it on StockTwits, so let me clear that up. Pretty much everyone knows by now that Susquehanna International Group, LLP dumped a bunch of shares. So much that it accounts for about 1/3 of shares sold by all institutions combined.
That’s from Nasdaq.com. Most people may stop there and say “DAMN!”, but if you take it a bit further you will find something interesting. Susquehanna International Group, LLP doesn’t actually own any shares. They are the filing manager of the 13-F. Therefore, their name is listed on all the websites that compile this information, like Nasdaq.com. The fact is, they are filing it for several other managers who are the ones who really have the holdings, not Susquehanna International Group, LLP.
Here is the 13-F of Susquehanna International Group, LLP for the Q4 2017. I consolidated this to show the pertinent information. See that list in the middle titled “List of Other Included Managers”? They are the ones who actually have the holding and Susquehanna International Group, LLP is simply filing this for them. Below that, I’m only showing the holdings of SGYP. Their are actually hundreds of other securities this file pertains to.
Here is a link to the SEC 13-F filing in case you don’t believe me. From there click on the primary_doc.html and then the file.html links to see everything.
In the list of holdings, the numbers I highlighted correspond to the manager those holdings belong to. From above you can see the real owners are Susquehanna Securities with 2,551,434 shares and a joint ownership of Heights Capital Management, Inc and CVI International, Inc. with 11,760,726 shares. I’m going to leave Heights Capital out of it and just say CVI. Heights Capital is the investment manager to CVI, so they are always mentioned together. So, when I say CVI Investments, Inc, I am referring to both of them.
Now, here’s where it gets funny.
This is the most current 13-F from Susquehanna International Group, LLP. Like I said, they aren’t the ones with ownership. They are just listed because they filed the 13-F. The sum of other managers’ ownership is what the numbers represent. So, if you notice, CVI Investments, Inc. wasn’t included in the list of managers on the latest one. You could say they aren’t listed because they no longer own anymore shares. But remember, you are only looking at SGYP here and there are actually hundreds of different securities in this list. CVI Investments, Inc has ownership in other securities, not just SGYP. So, unless they sold out of every other security they own on this list, they should still be listed in the managers even if they did just sell out of SGYP.
So, referring to the screenshot from Nasdaq.com above, did CVI really sell all their shares? Or, are they just not included in this filing? If Susquehanna International Group, LLP is simply a container for these multiple managers and CVI was part of the sum in the previous quarter, and not in this one, the new sum would definitely be less and look like they sold.
Here is another 1.757.898 shares CVI International, Inc bought. This time the manager that filed it was CVI Holdings, LLC. From the price paid, I estimate this was bought on 3/2/18 at $1.83 a share. That’s the exact low of the pop we got after Q4 earnings. It is strange that they would have bailed on 12 million shares and then turning around and used a different manager to file and buy 1,757,898, but what isn’t strange about this?
Ok, that was way too easy. Let’s turn up the fuckery a few notches.
If you do use Nasdaq.com to get the institutional ownership and 13-F filings, you may not be getting the complete picture. You may be aware of all that I showed you, but you may not know about the 13-G because those aren’t included in the list at Nasdaq.com.
That being said, I’m not sure if what’s shown on the 13-G is in addition to what’s shown on the 13-F or part of it. Let me explain:
Here is the link to what I’m showing above. From there you can click on the 13-G links to get to the actual filings. First note that I wrote those dates in red. Those are the dates that the event causing the filing happened. The dates shown in the table are the dates the report was filed. That’s important to know because 11/13/2017 was everyone’s favorite day… the offering!
Per the offering, they were selling 21,705,426 shares of common stock at $2.58 a share. Along with each share bought came 1 warrant with an exercise price of $2.86 and an expiration date of 11/15/19. Remember that!
Apparently, CVI Investments bought 19,379,845 of those shares which gave them 7.9% ownership, which is important… so remember that too.
Where I get confused is in the 11,760,726 from that first 13-F. By figuring out the price those shares were purchased at, finding what days the high and low covered that price and finally determining which days had the volume needed, it came down to one possible date. Guess… yep, also 11/13/17. So, were the shares in the 13-F and 13-G two separate transactions on the same day, or both part of the same one transaction? My guess is they were two separate transactions. First of all they are different amounts which wouldn’t make sense. Second if you combined the shares bought, it’s more than the total offering.
My guess is the shares from the 13-G were bought from the offering and the shares from the 13-F were bought in the market.
Now moving to the next 13-G. The event that caused the filing was on 12/31/17. They sold 7,042,729 of those 19,379,845 shares. By doing so, it dropped their ownership to 4.8%, as highlighted above. Again important! In doing that, they now owned less that 5% and had to amend the first filing with the second. The shares were losing value, so my guess is they sold on 12/31/17 for tax purposes. But why such a strange amount, 7,042,729? Well, here’s what I think.
There is a little clause at the bottom of that second 13-G that’s not on the first one. It goes like this:
Read that highlighted part a few bazillion times. They are not saying they own 12,337,116 in stock. They own that much in stocks and warrants. Actually, they own 2,647,194 shares in stock and 9,689,923 in warrants. I was doing some math and just confirmed that the shares from the 13-G were in fact purchased from the offering as suspected.
In the first 13-G they reported owning 19,379,845 shares. That’s not exactly right. In fact, they bought 9,689,923 shares, so 45% of the offering. Because they get one warrant for each share bought, they actually had 9,689,923 common shares and 9,689,923 warrants for a total of 19,379,845 in stock and warrants. Now, they could not exercise the warrants because that would give them 7.9% ownership based on the outstanding shares at the time of purchase. So, to get it to where they could exercise at a moments notice, they sold that 7,042,729 shares of the common stock, which now left them with 2,647,194 shares of stock and the original 9,689,923 warrants. This would now be their 12,337,116 shares of stock and warrants as reported.
The outstanding shares at the time of the deal was 246,660,367 shares. If they were to exercise their 9,689,923 warrants now, the outstanding shares would go up to 256,350,290 because exercising a warrant creates a new share of stock. Now they would have 12,337,116 shares of common stock which would indeed be 4.8% of the new outstanding share count. However, according to SGYP’s website, the outstanding shares have gone up slightly as of 3/31/2018. The outstanding shares are now 246,717,367, but its not enough to change the 4.8%. So, the gun is loaded and good to go.
Now that they’ve done their stretching and prepare for exercising, we have to go back and address part 1. When it says the exercising of warrants can not cause more than 4.99% ownership, do they mean just that one transaction from the offering purchase or all their holdings? Perhaps it is just that one transaction that can’t result in greater than 4.99% ownership, and that is why CVI International, Inc. holdings has one listing in the 13-F by Susquehanna International Group, LLP and another in the 13-G filed by themselves. They need to keep them separated.
On the other hand, if they mean all holdings can’t be greater than 4.99%, then maybe they did sell that other 12 million shares from part 1. That seems like a lot to have to sell to comply with the clause though. Not to mention they took a loss if they did. Perhaps one of you guys have a better insight to how that works. Also, we know they purchased another 1,767,858 shares through CVI Holdings, LLC.. If that 4.99% ownership rule applies to all their holdings, then if they exercised their warrants now, with what we know, they’d be at 5.5% ownership and their personal trainer would not approve!
My best guess is that CVI International did not sell all those shares, they just weren’t included as a manager on the report. Therefore, any stock in that 13-F that had ownership by CVI International, LLP will have showed a decrease in institutional ownership. I’m also betting that the 4.99% rule only applies to the stock and warrants purchased in the offering, so any ownership outside of the offering is not included in the 4.99%.
At first I was a little miffed by all the institutional selling, I mean its not good when you’re trying to follow the smart money and they are all jumping ship. But now, I see there may be a good reason. First of all, perhaps there wasn’t as much selling as thought. I’d be ok with knowing that CVI International, Inc is still holding 11,760,726 shares. There was still a good bit of selling, but it may not be as bad as thought.
Those warrants from the offering don’t expire for another 18 months or so and no hurry to exercise them. However, CVI International, LLP alone owns 45% of the warrants and has already positioned themselves to exercise them at the drop of a hat. Not that they will, but they are getting prepared early. The warrants are set at $2.86 a share. They would need to run the price up into the $3.00 range or more with tons of volume to make it work. Especially if they do still hold those 11,760,726 shares and add another 12,337,116 after the warrants. I’d think they’d need to sell over 33 million shares a good bit above $2.86 to make a worthwhile profit.
So now we can make all kinds of fun speculations, like maybe they are trying to cover their shorts before running it up to exercise the warrants. That is why the price is being held down and every attempt to move up gets knocked down.
Actually, all kidding aside, this past short interest was pretty much no change, but I was expecting a good decrease in short interest. It was brought to my attention that the settlement date of the latest report was 5/15/18. I thought we would see good covering on 5/11/18 after earnings, that was also the spring I was talking about last time. Anyway, that was a Friday, and settlement takes 3 business days. That means the spring day would have settled on Wednesday 5/16/18 and not been included on this report. So, I’m expecting good news on the next one, which would play into all this.
Finally, speaking of the spring. It’s still not dead. It happened, but was short lived. We were all hoping for much more out of it. The volume is so low, it’s hard to make heads or tail about it and declare the spring a failure. I can only keep saying its some prolonged low volume testing to make sure supply is mopped up, or being mopped up.