Another Conversion Suggestion for Discussion Folks, as many on this board have said before the conversion of the Preferred As & Bs are likely to cause significant dilution to the common shares. I am just toying with an approach that could amount to the equivalent of a conversion without the dilution.
First some background. I believe that the currently inactive Dividend Reinvestment Program (DRIP) for common shares allowed the share dividend to be paid in one of two ways. The first was to issue new shares directly from Treasury (that is, authorized but unissued shares) to pay the dividend. This is the equivalent of selling participants of the DRIP new shares at a price determined by the program rules. When this option (issue shares from treasury) is used it causes dilution (slight) for the shareholders who are not participants of DRIP. The second option for Yellow Media in paying the dividend in shares was to go to the open market and purchase the shares needed to pay the dividend and turn those shares over to the DRIP participants. If this option is selected no dilution occurs. I am not sure what approach Yellow was following in the days leading up to the dividend being cut but where they had a NCIB (implies that the company believes that it was over capitalized and wanted to reduce shares outstanding) program running for part of that time it would tend to suggest that the second option would have been used. I couldn't find a description of the DRIP on the Yellow Media website anymore that confirms these options but I did see a third party reference to it on marketwire.com.
https://www.marketwire.com/press-release/yellow-media-inc-announces-dividend-reinvestment-plan-tsx-ylo.un-1338882.htm Please refer to the third paragraph.
So, my apologies for being so long winded but that confirms, at least for the DRIP program, there were two different ways to pay out shares as dividends.
Now to the matter at hand.
What would happen if Yellow purchased the shares it needed for the "conversion" on the open market to supply the needed shares for exchange to the preferred holders. I realize it would be better to simply buy back the preferred shares at the current market prices but that can't happen for two reasons. First, they are forbidden by the banking agreement (as I understand it) from doing so and second the low liquidity would make getting them all, quite difficult.
So instead, they buy enough commons on the open market for the "conversion". There is sufficient liquidity that they could probably accumulate the required volume over a period of several weeks without driving the price up too much.
It may be a bit of a grey area but they are not buying shares and cancelling them (like a NCIB program) so this may not be violating the agreement with the lenders. If Yellow Media genuinely believes their book value is accurate then this sort of approach tends to help keeping it from dropping lower so perhaps worth considering. This would definitely favour the interests of the common shareholders. Although it is not as good a redemption at par plus accrued dividends (at least at this time) for the preferred holders, it is a better deal for them than a straight conversion that gives them significantly diluted shares.
As I have said in an earlier post, I was wondering what they were doing with that war chest full of cash. This may be one good use for some of it.
Anyone have deeper insight into the lending agreement? Perhaps this approach is impossible.
I like to hear other opinions on this.
BTW, I have sent this suggestion to IR as well. I requested access to the BOD but that request was not answered.