About-face!

Tel-Save

(TALK)

stock plunged to new lows after the Pennsylvania telephone company disclosed plans to sell as many 16 million shares.

No, that's not a misprint. Tel-Save, the same company that spent close to $200 million to buy back shares less than six weeks ago, now plans to sell those shares to the public. In an interview Wednesday, Daniel Borislow, Tel-Save's

volatile chairman, wouldn't explain his change of heart, saying the company's registration statement with the

Securities and Exchange Commission

"speaks for itself." In the filing, Tel-Save said it would use the proceeds for general corporate purposes. Tel-Save plans to sell the shares without an underwriter.

But short-sellers, including two interviewed yesterday, say the abrupt turnaround proves that the company's spiraling

losses have left it badly short of cash. Even before Tel-Save finished its buyback, the shorts, who have targeted the company for months, insisted the move would backfire. They argued that Borislow was foolish to burn his company's cash cushion on a share repurchase as Tel-Save was spending hundreds of millions of dollars to market its long-distance service to

America Online

(AOL)

customers.

Borislow, whose battle with the shorts has grown increasingly bitter as his stock has

dropped, insisted at the time of the purchase that he had more than enough money for the buyback and his business. So what changed?

"I don't think there is a turnaround," Borislow says. The offering will give Tel-Save "the flexibility that the company needs." He adds that money-losing Tel-Save will have positive cash flow in the fourth quarter and has $130 million in the bank, net of margin loans.

But Tel-Save's shareholders, who have already been treated to seven months of bewildering behavior from Borislow, including his short-lived plan to spend as much as $600 million on another struggling telco run by a convicted cocaine dealer, weren't buying that explanation. Tel-Save stock fell by almost a third yesterday, closing at 5 3/16, down 2 9/16. About 2.8 million shares changed hands on the day. The stock was trading at 5 1/4 this morning. In February, Tel-Save reached its all-time high of 30.

With Tel-Save's stock in a tailspin, the share repurchase has turned into a terrible investment. In late August, Tel-Save was regularly buying its shares for 12 to 14. At yesterday's closing price, Tel-Save has already lost more than $100 million on paper in just over a month on those shares. And the company's sale will flood the market with more shares, possibly depressing Tel-Save stock further -- and increasing its losses on shares it bought back and still holds.

The sale will bring to a close one chapter in Borislow's battle with

short-sellers, who sell stock they don't own, hoping to buy it back later after its price has fallen.

In a conference call in August, Borislow noted that the share buyback could force some shorts to cover by shrinking Tel-Save's float. Since then, he has repeatedly accused the shorts of "naked shorting," or illegally selling stock they haven't borrowed. Earlier this week, Borislow even sued

Deutsche Bank

, accusing it of failing to deliver shares that Tel-Save had purchased in its buyback because, according to the lawsuit, "DBS and/or its affiliates have themselves been engaged in illegal short-selling of Tel-Save stock." Deutsche declined to comment. But the sale will increase the number of shares available to borrow, reducing pressure on the shorts to cover.

For more info on institutional holders of this stock, as well as financial statements and earnings estimates, please see the

Thomson Company Reports.