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What's Next For Marathon Patent Group Inc (NASDAQ:MARA)?

What's Next For Marathon Patent Group Inc (NASDAQ:MARA)?
Written by
Chris Sandburg
Published on
June 22, 2017
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At the beginning of this week, Marathon Patent Group Inc (NASDAQ:MARA) was trading for around $0.15 a share. Late afternoon on Wednesday, the company reached just shy of $0.35 a share, running more than 133% to intraday highs. A correction brought it to close out at little over $0.30 a share, bringing the day's tally to a 97% appreciation.It's not uncommon for companies at this end of the market to log high double-digit or triple-digit gains across a session on certain fundamental or news driven drivers.In this instance, however, no news hit press, and no new filings hit the SEC.More than 14 million shares traded hands during the session, when, 30 days ago, the company would be lucky to have seen daily volume reach six figures.So, this all begs the question, what's going on? And ultimately, what's next?For those new to Marathon, there is not much to say other than it is an intellectual property (IP) patent type company, which buys (or takes on) patents and then attempt to monetize them through the raising of various lawsuits against (generally) big name companies.Through a range of subsidiaries, the company manages a portfolio of tens of thousand patents, and attempts to enforce them globally with – right now – a particular focus on Europe (as Marathon has had a fair amount of success over the last few years in the region).Over the last couple of months, however, things have soured a bit at the company. A debt issue that is midway through a potential resolution is set to develop at some point in mid-August (in the sense that the company will have either met the terms of a repayment agreement or not, in which case it will revert to previous terms) and shareholder sentiment is relatively negative as things stand.What's probably more important than this debt issue, however, is a recently filed proxy that is set for vote on July 18, 2017. Three of the issues that will be put to vote are of note – one, the ability of management to issue shares at 25% discount, two, the ability for management to do the same but at a 15% discount and three, a reverse split at a ratio of between one-for-four and one-for-twenty-five.This is one of those situations that we see quite regularly at this end of the space. Nobody wants a reverse split, but it's necessary for NASDAQ listing requirements. The company also needs to raise capital to pay off debt, and the ability to offer at a discount to open markets would make doing so far easier.For management, and as illustrated by its recommendations on the proxy proposals (all 'For'), these things make sense. For shareholders, the opposite is true to a large degree. Reverse splits aren’t dilutive inherently, but when a company splits it's very rare that it is able to hold its post-split pricing, and the selloff impact essentially amounts to dilution longer-term. An equity issue is dilutive in itself, but add a market discount to the issue, and it exacerbates the problem.So that's what's going on, but none of this really answers our initial question – what's driving the move?The only thing we can suggest is that what we're seeing right now is a short squeeze on the back of some pretty heavy short positions that loaded up in anticipation of a reverse split. A bit of extra volume sparked some short covering, and this induced more covering and so on.So what happens from here?Well, regular readers will know that we saw something similar earlier this month with Delcath Systems, Inc. (NASDAQ:DCTH) and we covered it as part of this piece earlier this week.The company was pitching for a reverse split, but failed to pick up the votes it needed to enact the split, and ran up dramatically on the back of the failure. Markets were able to focus on the company operationally without the backdrop of a potential capital structure concern, and this translated to some upside momentum; it still is, if you take a look at the stock.As such, we may see something similar here.If the proxy gets shot down by shareholders (and there is a good chance it will be) then we could really see this one start to run on the basis of nothing more than a sentiment shift.It is a short-term play, of course, but it could still be a nice win for anyone willing to take on a bit of risk ahead of vote day, July 18.We will be updating our subscribers as soon as we know more. For the latest updates on MARA, sign up below!

Image courtesy of Karen Neoh via Flickr

Disclosure: We have no position in MARA and have not been compensated for this article.

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