RE:RE:My vote against the debentures amendment is in...markaswell wrote: What happens if we vote it down ? Can they just exchange the debentures into stocks and we have no say.
They aren't exactly clear about what happens. They will find another way to pay for it, which could include issuing shares. That being said, they also mention they could replace the debt, pay in cash, etc.
I don't believe they will issue shares (or if they do, it will be a small portion). The $6 USD conversion price is a premium over 300% on the current stock price. It's not really attractive compared to most offerings on the market (premiums are rarely over 100% and only occur when the company has a solid financial position...). Only reason they would set it so high is because the major shareholders (two funds hold over 50% of the common shares) don't want to get diluted. Otherwise, a conversion price around $3 would likely have made it much more easy to pass/accept. When they issue shares to pay out the debentures, they need to issue at 5% lower than the share price on the date they are paid, which would mean an increase of 38% of the shares issued if completely paid out in shares.
They also have cash in the bank, could increase their cash position by selling a property (to pay out the debentures) or issue new debt. Unfortunately for the debenture holders, they are trying to force them in a bad deal, knowing fully that if they were to hit the market with a new debentures, they would have to set a conversion premium around the $2.50-$3.00 range, with possibly a higher interest rate... So they're trying to get this deal through (and they don't even provide an independant advice validating that the deal is fair, which is usually what needs to be done)... but like I said, if they want to lower dilution, better issue new debentures that could create dilution at $2.50 rather than issue shares under $2.00.
Because the deal is really bad, considering the 22ish % they will pay in cash, the issued shares would have to lose over 28% of their value (from the day they are issued) to make receiving shares a worst deal than what they have offered (the current offer they made is worth approx $80 per $100 of debentures if the new debentures hold the same value as the "V" series, which they may not). At 28% loss on the shares, it would be about the equivalent of selling now for a bit over $80.
If they pay a higher % in cash with the rest in shares, then this just improves the return for the current holders. For example, if they were to pay 50% in cash and the rest in shares, each holder would receive $50.40 + interests and an extra 29 shares for each $100 worth of debs. Considering the same 28% drop (from the day the shares were issued), then debenture holders selling the shares would earn a total of $87.8 (+ interests due).
Also, since a payment in shares would be done at a 5% discount to market on payment date, then anyone wanting to buy shares (on the market) would have an advantage of buying the debentures instead, which would likely push up the debentures trading value before the conversion (so holders could sell at a higher price).
Think about it, since the conversion price is 95% of the value at the common shares at payment date, someone buying the debenture at $90 would get a total discount on shares of 16% compared to buying the shares directly in the market. Due to the lowball offer of the "enhancements" (which is perceived as such by the market, since the debentures value dropped by 9% since the announcement), being paid partly in shares would be a much better deal for debenture holders. There is a good chance the debentures would regain value before the conversion and even if you hold and sell the shares afterwards, your odds of getting out with more money are much higher than accepting the management's offer.