RE: RE: RE: Dilution versus DelusionalIt's interesting to see that Versant makes a "bought deal" with WEW. so Versant is pretty confident that the price they paid is good.
The price they paid
.40 likely sets a floor for the SP.
A bought deal occurs when an underwriter, such as an investment bank or a syndicate, purchases securities from an issuer before a preliminary prospectus is filed. The investment bank (or underwriter) acts as principal rather than agentand thus actually "goes long" in the security. The bank negotiates aprice with the issuer (usually at a discount to the current market price, if applicable).
Theadvantage of the bought deal from the issuer's perspective is that theydo not have to worry about financing risk (the risk that the financingcan only be done at a discount too steep to market price.) This is incontrast to a fully-marketed offering, where the underwriters have to "market" the offering to prospective buyers, only after which the price is set.
The advantages of the bought deal from the underwriter's perspective include:
- Bought deals are usually priced at a larger discount to market than fully marketed deals, and thus may be easier to sell; and
- The issuer/client may only be willing to do a deal if it is bought (as it eliminates execution or market risk.)
Thedisadvantage of the bought deal from the underwriter's perspective isthat if it cannot sell the securities, it must hold them. This isusually the result of the market price falling below the issue price,which means the underwriter loses money. The underwriter also uses upits capital, which would probably otherwise be put to better use (givensell-side investment banks are not usually in the business of buying newissues of securities).