Descartes Meditations Revisited
* Convertibles have a place as the currency used in takeovers. The bidder can offer a higher income on a convertible that the dividend yield on a bid victim's shares, without having to raise the dividend yield on all the bidder's shares. This eases the process for a bidder with low-yield shares acquiring a company with higher-yielding shares. Perversely, the lower the yield on the bidder's shares, the easier it is for the bidder to create a higher conversion premium on the convertible, with consequent benefits for the mathematics of the takeover. In the 1980's, UK domestic convertibles accounted for about 80pct of the European convertibles market, and over 80pct of these were issued either as takeover currency or as funding for takeovers. They had several cosmetic attractions.
The pro-forma fully-diluted earnings per share shows none of the extra cost of servicing the convertible up to the conversion day irrespective of whether the coupon was 10pct or 15pct. The fully diluted......
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Descartes Meditations Revisited
Descartes Meditations Revisited. * Convertibles have a place as the currency
used in takeovers. The bidder can offer a higher income ...
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