Perhaps more importantly, the sale of the puts (which are expiring worthless today, absent a significant drop on the NASDAQ, in Mattersight’s stock price — to well below $2.50) reduce the overall average effective price the hedge fund paid for its stake in the company. We should expect more potentially market price distorting gamesmanship (though all of it clearly lawful), in the coming weeks and months — in Mattersight’s stock, since Viex is the first “activist” hedge fund 13D filer the company has seen in quite a while (over a decade at least — based on a quick review). More on that, toward the end of the post…. Yep — just confirmed — while it is not clear that Viex will go fully hostile, Viex is the first openly activist hedge fund to enter a Mattersight position, in two decades (from its founding funders’ web site):
…VIEX engages in an activist strategy, creating catalysts to unlock shareholder value in small cap companies, predominantly in technology….
Here, Bob explains (as a bit of highly-useful background) what this is all about:
…Remember, any trade has two parties. If someone wants to short puts (essentially selling puts you don’t own and putting up the cash as collateral, betting the price of puts falls, whereby they can be bought back for less money to make a profit, which would only happen if the price of the stock rose), there needs to be another party that takes the opposite side of the trade. In this case, the broker who would then make another trade (buy the stock or buy calls on the stock) to eliminate their risk. That the stock price rose suddenly today is confirmation of that.
I don’t think we’ve seen many of these kinds of trades in MATR and a person would have to have some solid belief the stock price will rise significantly in the short-term, based on the expiration. To do so on a mere hunch, given the history of MATR, would be equivalent to volunteering for a psychiatric hold for observation. It is logical to assume that this person has some information that is not well-known by the investing public….
I would add that Viex clearly timed the bulk of the sold puts to expire only one day after the the date on which Viex knew it would have to disclose its large position to the world (under SEC rules) — and also likely knew that its disclosure would cause an increase in the trading price on the NASDAQ, all things being equal.
All of that is clearly lawful hedge fund trading — but what now looms is a likely horrible set of GAAP losses, in the Q2 2017 results, in a few weeks, now scheduled for after NASDAQ close on August 8, 2017.
Unlike a 13G filer (which is a so-called long term passive investor filing), Viex is a 13D filer, leaving wide open the possibility that it seeks changes in board composition and executive management. And in truth that too could cause an increase in the NASDAQ stock price, as quoted on the NASDAQ OTC.
We shall see.
Onward — and as ever — a huge debt of thanks is owed, and goes out to Bob. [Just to complete the record, some time prior to 2014, the founder, Mr. Singer, changed Viex’s name — it used to be called Vertex Capital Advisors. I suspect, but cannot prove, that Vertex Pharmaceuticals may have oh-so politely asked him to do that. Smile….]