RE:Revised: Tranches ExplainedUnder 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 carrying value 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, 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.