Here’s a weird one for ya
Not an arbitrage opp, but more like a long term roll of the dice… you get 7-year stock warrants on this one! Wait… what?
Frontier Financial Corporation (NASDAQ: FTBK) is to be acquired by Acquisition Holdings, Inc. (NYSE Amex: DSP) (”SPAH”). The deal is 0.053 shares of DSP stock (currently trading at $9.73 on July 31, 2009) and also 0.053 warrants of DSP stock that last for 7 years with an exercise price of $11.50/sh (expiration date is 7 years out).
Number crunch: The 0.053 shares is well under water based on current stock prices. However, that makes sense, as the warrants, if DSP stock goes up, more than make up for it (and you have 7 years to wait it out). Thing is, FTBK does not appear to be in great shape (just posted a quarterly loss), and if DSP is buying them, in the short term, this might make DSP stock actually go down (putting those tasty warrants even further out of reach).
Analysis: First time I have looked at a deal like this. I am going to sit back and watch. I’d like to see how much DSP stock rises or falls after the deal is completed. My hunch is that long term, if they stay in business, the warrants will pay off. Short term, not so much.
Here’s a snippet on the terms of the deal:
Under the terms of the merger agreement, each share of Frontier’s common stock outstanding will be exchanged for the right to receive 0.0530 shares of SPAH common stock and 0.0530 SPAH warrants upon completion of the merger. Frontier currently has 47,131,853 shares of common stock issued and outstanding, which will be exchanged for approximately 2.5 million shares of common stock of SPAH and approximately 2.5 million warrants of SPAH, in the aggregate. Such warrants will have an exercise price of $11.50 per share and exercisable for seven years. The closing price SPAH common stock on the NYSE AMEX on July 30, 2009 was $9.75 per share. The stock and warrants received will be listed on a national stock exchange.
Leave a Reply