Jack, Several thoughts about your post.
Nowadays, good accounting practice does include all potential shares from employee options, convertibles, etc.
Second, the dilution from this debenture would be about 3.3%, so we know the Oppenheimer guy's calculator works. At the time of the debenture's announcement, AOL was trading at 74 & change. It immediately dropped to 73 in afterhours. The dollar value per share of the dilution was about 2-3/8. In other words, it seems to me the dilution got discounted immediately, which tells us that though his calculator was working, his brain was not. The stock opened the next day and kept going down, in fact, was already in a downtrend at the time of the news. Anything more than a couple of points represents to my mind people worrying about something other than dilution.
Who would buy the converts? Rather than thinking of it as comparable to treasuries or corporate bonds, think of it as AOL with a 4% dividend. At the time the deal was put together, they could point to a rising chart and suggest AOL would be to 104 in no time, plus they get 4% while they wait. Also selling a dollar denominated asset into an area with recently devalued currency might make it look attractive. Not to me or you but to someone. Afterall, someone bought this crap all the way up to $90/shr.
BTW, I don't think I've ever seen convertible debt that wasn't subordinated. Senior debt is almost always just straight debt. The only think it converts into is cash at maturity.
Best,
Steve |
