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I'm not sure you are comparing apples to apples. It is my understanding that in deals of this nature, the selling company (Ancor in this case), typically offers a VERY significant sales discount to the buyer (Sun) in order to effectively guarantee their business. If you accept this as being the case, and consider the warrants as a substitute for a routine, say, 50% sales discount, you might make a different decision. In the present case, Ancor gets ALL the cash vs. getting 1/2 the cash. Even with the $100 million cash in the bank, they get to take a tax deduction on the discount they are offering through higher stock prices, making the effective cashflow difference even larger. Furthermore, in the present case, the vesting of warrants virtually guarantees exclusivity from Sun (at least until they have all their warrants) whereas in the other case they might simply use it as a negotiating tool to get better prices from Brocade or another switch vendor and not buy exclusively from Ancor, thus further reducing the actual cashflow Ancor sees. Given these considerations do you still think an outright sale of shares and a large sales discount would be more advantageous to Ancor than the current situation? |
