NYTimes.com Article: An Unexpected Bump for UAL Shares

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An Unexpected Bump for UAL Shares

March 2, 2004
 By THE NEW YORK TIMES





UAL says its stock is likely to be worthless when it
emerges from bankruptcy protection, but the shares are
trading as if investors do not believe the company.

Shares of UAL, traded in the over-the-counter market,
leaped 24 percent yesterday, to $3.53, trading as high as
$3.70, and has doubled over the last two weeks. Volume came
to 15.6 million shares. The stock is now at its highest
level since November 2002, soon before the company filed
for bankruptcy protection.

Uninformed speculation is not uncommon when companies near
an end to the bankruptcy process as some investors confuse
optimistic forecasts about the company's postbankruptcy
prospects with a forecast that the current stock will do
well. UAL expects the current stock to be canceled, with
creditors being given new shares in exchange for canceling
all or part of their debts.

In addition, it is possible that there is a short squeeze,
in which speculators borrow shares to sell them, betting
the price will decline, but then are required to repay the
loan and have to scramble to purchase shares, temporarily
driving up the price.

In any case, the speculation does not appear to have
extended either to the company's unsecured bonds or to its
preferred stock, both of which rank higher than the common
stock but whose prices are not rising. In yesterday's
trading, the price of the company's 12.25 percent preferred
stock, which is supposed to pay an annual dividend of
$3.06, declined 10 cents, to 75 cents, on volume of just
400 shares.

http://www.nytimes.com/2004/03/02/business/02united.html?ex=1079237821&ei=1&en=6eec212d5fbba9f8


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