Warrants in
Mergers --
What's the Deal
?
When two
companies decide
to merge it is
usually rather
straight forward
as to how much
shareholders of
the company
being acquired
will receive,
either in cash
or in shares of
the acquiring
company.
If the acquiring
(aggressor)
company has
warrants trading
there is no
change in those
warrants. The
warrants will
continue to
trade on the new
combined
company.
But when the
company being
acquired has
warrants
trading, ah, now
we have
something to
think about.
There are
basically two
issues:
1. The exercise
price of the
warrant
2. The
expiration date
of the warrant
Rarely are the
warrants bought
out for cash in
which case the
warrant terms
are required to
be adjusted to
reflect the
share terms of
the merger and
the warrants
will continue to
trade but are
now warrants on
the acquiring
company.
When confronted
with the
situation where
warrants which
are included in
our warrant
database are
involved in a
merger we try
and get a handle
on what the
'proposed'
merger
will look like
for subscribers
and warrant
holders.
Let's take two
live examples
and you can see
what we are
talking about.
A. Golden
Minerals is
proposing to
buyout ECU
Mining which
has warrants
trading and in
our database.
The terms
basically call
for ECU
shareholders to
receive .05
shares for each
share held plus
some cash.
(Note: Golden
Minerals (AUM)
sells for around
C$18.00 and ECU
sells for around
C$0.90)
The ECU warrant
trades around
C$0.40 with the
following terms:
1. Exercise
price of C$.95
2. Expiration
date of
20-Feb-2014
Upon completion
of the buyout
the warrants
will trade as
warrants on
Golden Minerals
and will have
the same
expiration date.
However, the
exercise price
will be adjusted
as follows:
Old exercise
price C$0.95
divided by .05
(terms of
buyout) =
C$19.00
For subscribers
and potential
warrant holders
the question is,
"is this a
good deal"?
Remember that
warrants are all
about leverage
and many times
the potential
leverage is
greatly
affective by the
new terms so a
detailed
analysis of each
situation is
essential.
Current
subscribers have
access to our
detailed
leverage
calculations and
views.
B. Northgate
Minerals is
proposing to
merger with
Primero Mining
which has
warrants trading
and in our
database. The
terms call for
Northgate to
issue 1.5 shares
for each Primero
share. (Note:
Northgate (NGX)
sells for around
C$3.12 and
Primero (P) at
around C$4.10.
The Primero
warrant trades
around C$.75
with the
following terms:
1. Exercise
price of C$8.00
2. Expiration
date of
20-Jul-2015
Upon completion
of the merger,
the warrants
will trade as
warrants on
Northgate
Minerals and
will have the
same expiration
date. However,
the exercise
price will be
adjusted as
follows:
Old exercise
price of C$8.00
divided by
1.5(terms of
merger) =
C$5.33
Again, we ask,
"is this a good
deal"? Our
detailed
leverage
calculations
will assist you.
We trust that
this will help
in clarifying
how warrants are
treated in a
buyout or merger
for subscribers
as well as any
investor
interested in
the leverage
opportunity that
warrants offer,
especially in a
strong bull
market which we
expect to begin
soon.
Our warrant
database
provides all of
the details and
our leverage
calculations on
each warrant
trading on all
of the natural
resource shares.
Our
Gold
Subscribers
have unlimited
access
to our Warrant
Database and
also access to
my
personal
portfolio
and to our
Insider Trading
data with
Buy and Sell
recommendations.
My personal
portfolio now
includes over 80
different
positions.
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SERVICES
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be
questioning
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You must
remember
that our
services are
very unique.
Actually our
Gold
Subscribers
have access
to 3
different
services,
warrant
database, "A
Look Over My
Shoulder",
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and our
Insider
Trading
data. When
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Dudley
Dudley Pierce Baker -
Owner/Editor -
Guadalajara/Ajijic,
Mexico
Bruce Ross -
Webmaster and
Administrative
Assistant -
Phoenix, USA
Jeff Baker -
Assistant Editor
and
Administrative
Assistant, El
Paso, USA
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