Comment, question or quotation of the day
20-10-2021 : Question from a reader
“How are mandatory convertible bonds (MCB) treated in a merger?”
After a merger, the rate of remuneration of MCBs remains the same and there is no reason to change it unless both parties (the issuer and the MCB holders) decide otherwise since the remuneration of a MCB is an interest rate independent of the dividend paid on the share.
On the other hand, the new conversion basis is adjusted to take into account the merger parity. For example, if an MCB was redeemed in 2 A shares and A is absorbed by B on the basis of 3 A shares for 5 B shares, then the MCB will be redeemed in 2 x 5/3 B shares, i.e. 3.333 B shares.
Have a nice day.
18-10-2021 : Question from an ICCF@CBS participant
I find it counter-intuitive that a risky investment that will be disbursed in some time has a lower present value than its face value. What do you think about this?
It is normal that an investment whose disbursement is not immediate has a lower present value than its face value by the very mechanism of discounting. The fact that the investment is very risky does not change the case. Indeed, having postponed in time the moment when you will have to disburse for the realization of the investment, you free up today funds that you can invest in the meantime at the same rate of return (or at another one) and it is indeed this opportunity of making a profitable investment in the meantime that measures the lower net present value of the negative flow that occurs only for some time and not now.
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The Vernimmen.com Letter
Number 138 of July 2021
News : New listing methods
Statistics : Dividends and share buybacks on both sides of the Atlantic
Research : The internal capital markets: an alternative to bank credit in times of crisis
Q&A : A few questions and short answers
COMMENTS : Comments posted on Facebook