Warrants in Mergers — What’s the Deal?

The Warrant Report
July 20, 2011

Warrants in Mergers — What’s the Deal?

When two companies decide to merge it is usually rather straight forward as to how much shareholders of the company being acquired will receive, either in cash or in shares of the acquiring company.

If the acquiring (aggressor) company has warrants trading there is no change in those warrants. The warrants will continue to trade on the new combined company.

But when the company being acquired has warrants trading, ah, now we have something to think about.

There are basically two issues:
1. The exercise price of the warrant
2. The expiration date of the warrant

Rarely are the warrants bought out for cash in which case the warrant terms are required to be adjusted to reflect the share terms of the merger and the warrants will continue to trade but are now warrants on the acquiring company.

When confronted with the situation where warrants which are included in our warrant database are involved in a merger we try and get a handle on what the ‘proposed’ merger
will look like for subscribers and warrant holders.

Let’s take two live examples and you can see what we are talking about.

A. Golden Minerals is proposing to buyout ECU Mining which has warrants
trading and in our database. The terms basically call for ECU shareholders to receive .05 shares for each share held plus some cash.
(Note: Golden Minerals (AUM) sells for around C$18.00 and ECU sells for around C$0.90)

The ECU warrant trades around C$0.40 with the following terms:
1. Exercise price of C$.95
2. Expiration date of 20-Feb-2014

Upon completion of the buyout the warrants will trade as warrants on Golden Minerals and will have the same expiration date. However, the exercise price will be adjusted as follows:

Old exercise price C$0.95 divided by .05 (terms of buyout) = C$19.00

For subscribers and potential warrant holders the question is, “is this a good deal”? Remember that warrants are all about leverage and many times the potential leverage is greatly affective by the new terms so a detailed analysis of each situation is essential.
Current subscribers have access to our detailed leverage calculations and views.

B. Northgate Minerals is proposing to merger with Primero Mining which has
warrants trading and in our database. The terms call for Northgate to issue 1.5 shares for each Primero share. (Note: Northgate (NGX) sells for around C$3.12 and Primero (P) at around C$4.10.

The Primero warrant trades around C$.75 with the following terms:
1. Exercise price of C$8.00
2. Expiration date of 20-Jul-2015

Upon completion of the merger, the warrants will trade as warrants on Northgate Minerals and will have the same expiration date. However, the exercise price will be adjusted as follows:

Old exercise price of C$8.00 divided by 1.5(terms of merger) = C$5.33

Again, we ask, “is this a good deal”? Our detailed leverage calculations will assist you.

We trust that this will help in clarifying how warrants are treated in a buyout or merger for subscribers as well as any investor interested in the leverage opportunity that warrants offer, especially in a strong bull market which we expect to begin soon.

Our warrant database provides all of the details and our leverage calculations on each warrant trading on all of the natural resource shares.

Our Gold Subscribers have unlimited access to our Warrant Database and also access to my personal portfolio and to our Insider Trading data with Buy and Sell recommendations. My personal portfolio now includes over 80 different positions.


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Dudley Pierce Baker – Owner/Editor – Guadalajara/Ajijic, Mexico
Bruce Ross – Webmaster and Administrative Assistant – Phoenix, USA

Jeff Baker – Assistant Editor and Administrative Assistant, El Paso, USA

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