RE:Tranches explained to the best of my knowledgeUnder the original transaction, STZ purchased 104.5m shares which included two tranches of warrants, each with an expiration date of Nov 1, 2021
Part 1 ( Tranche A) = 88.5m @ $50.40
Part 2 (Final Warrants) = 51.3m @ 5-day volume-weighted average price
The final warrants are only exercisable once Tranche A has been fully exercised, only then will the price per share be determined.
The newly revised transaction would separate the "final warrants" into Tranches B & C. The newly revised transaction would be changed as followed:
Tranche A = 88.5m @ $50.40 expiring in Nov 1, 2023
Tranche B= 38.5m @ 76.68 expiring in Nov 1, 2026
Tranche C= 12.8m @ 5-day volume-weighted average price
Tranche C warrants are only exercisable when both Tranche A & B have been fully exercised, and only then will the price per share be determined.
Explaining the non-cash cost of $1.176B
Since Tranche B has an exercise price it has to be converted from a derivative liability into an equity instrument. Under accounting rules, the fair value of B is measured using the Black Scholes Model. They did not include the annual risk-free interest so I could only calculate the share price and exercise price (76.68-40.66) to arrive at $1.387B. During the conversion, the difference between the exercise price and the fair value amounted to -$1.176B, which would have to be recognized in the income statement as a non-cash loss. Tranche C remains a derivative liability and only exercisable until both A & B have been exercised.
Under the new terms, this would allow STZ would be given a repurchase credit (similar to a share buyback), where they would be granted up to 24 months after the full exercise of Tranche A to purchase $1.583B worth of shares in the open market.
If I missed anything or made a miscalculation please feel free to include your input.