3i, LP converts preferred stock in Valion Bio into ordinary shares at a conversion price of $0.39 each. Then it sells those shares on the open market. On August 20, it was selling for about $0.12 a share.
The conversion price sets the rate at which 3i's preferred stock becomes common shares: for every $0.39 of preferred value converted, one new common share is created. Between the July 7 record date and August 20, the company's total share count grew from about 4.15 million to about 20.9 million, with the new shares going almost entirely to 3i through a series of conversions, according to a Schedule 13D/A filed with the SEC on August 24. Those new shares are then sold into the open market.
For holders of ordinary shares, each conversion makes their stake a smaller slice of the same company. Every share created for 3i at $0.39 is one more share dividing whatever Valion Bio is worth.
A contractual 9.9% ownership cap shapes how quickly this happens. 3i cannot hold more than a tenth of the company at any one time, so it converts a tranche of preferred into common shares, sells enough to fall back under the cap, and then converts another tranche. On August 20, 3i converted about 2 million Series C Preferred shares and sold 403,324 of them that same day at $0.1221. It sold additional shares on August 21 and August 24, at prices up to $0.1763.
Shares closed 35.40% higher at $0.1660 on August 25, on dollar volume of about $17 million.
The free float stood at about 3.09 million shares; short volume on August 25 was about 35.3 million shares.
Shareholders voted at a special meeting on August 14 to give the board the power to do a reverse stock split — at a ratio of anywhere between 1-for-5 and 1-for-50, at its discretion, within twelve months. A reverse split compresses the existing share count, giving each remaining share a larger slice of the company. It does not touch the preferred stock 3i still holds, or the conversion rights attached to it.
How much preferred stock remains available to 3i — and therefore how many more common shares it can still create — was not disclosed in the August 24 filing.