Does anyone here know the general process for exercising warrants? Can it be done through a broker, similar to how options are exercised, and are their additional costs for converting the warrants to shares? Once a warrant is exercised how long before the owner receives shares? Is it near instant like an option or does the company have to send certificates to the broker? If the warrants are similar to options then why do they have zero time value (today they were trading a penny below market)?
Today I saw a statement claiming that if the warrants were all exercised then the share price might be over $18 (see DailyFinance website). If that is the case then the warrants should have plenty of time value; especially as more and more warrants are exercised.
Personally I'd like to see the company make the conversion process as easy as possible for warrant holders and would encourage them to give incentives to warrant holders to get it done sooner rather than later... Of course, I'm assuming that Mr. Tanz could put the proceeds to good use.
A quick update for anyone who cares… Even though my broker told me that it may take up to two weeks for warrants to convert to shares; it took only two full trading days for ROIC warrants. I requested conversion on Wednesday morning and today (Friday) I received ROIC shares in my account (I suspect that results may vary from broker to broker). I believe that this is good news for anyone who is interested in participating in dividend related events because they should be able to safely plan their conversion for a few weeks before an ex-dividend event knowing that they should get their shares long before then.
It will certainly be interesting to see how many investors convert warrants before the next quarterly report. There are a few articles written about ROIC being worth over $18 if the warrant worries were removed. I like the fact that some investors are choosing to do a cashless conversion (I didn't ask if I have that option); reducing the amount of possible dilution while taking a very safe path to investing in ROIC. I also like the fact that the company has bought back some of their warrants; smartly using a little cash to limit the amount of dilution warrants could cause. I also like the fact that small investors like me can contribute to ROIC’s cash reserves by exercising some of our warrants. IMHO, this is a very interesting investment and one of a few worth holding for the long term (10+ years).
By the way, since the warrants were just as easy to exercise as options, I still can’t understand why the market isn't offering a time premium for these warrants. The reason I keep bringing this up is because it is usually advantageous to the investor to sell his/her warrants then use the proceeds to buy the stock. In the case of ROICW it is currently the other way around; investors are giving zero time value to over 16 months of time (often that much time is worth a 10% to 30% premium).
I just place an order to exercise ROIC warrants and learned a little more about how it works. Apparently the warrants don’t go through as quickly as options do (a prior broker claimed three to four days). It is up to the company (ROIC) to process the purchase request and issue the stock and “generally that takes up to two weeks”. Once again, it was interesting to hear the broker explain my options, he explained that warrants usually have “time value” and that it may be in my best interest to sell the warrants and purchase stock using the proceeds. When I told him that the warrants trade at a small (very small) discount to the stock it was obvious he didn't believe me because there was a long pause and I could hear typing in the background… FYI, I’m exercising warrants now in order to take advantage of the dividend that will be issued near the end of next month. I’m only exercise some of my warrants right now yet this exercise should give me a better feel for how difficult or easy it will be to exercise the rest once I’m ready. It may turn or that the best thing to do is sell the warrants and buy the stock on open market. That would make complete sense if the warrants were selling with a time premium, but for some reason they aren't (which makes absolutely no sense).
Sentiment: Strong Buy
Sorry Jim for misinterpreting your question. To find what you're looking for plug the following string into just about any search engine:
"Potential near-term gains A possible $18 and up could well come with the warrant overhang removed based on comparables."
jim, I haven’t seen the doc that talks about a forced exercise at $18 but it wouldn’t surprise me if there is one. Personally I’ll be exercising with cash instead of doing a cashless exchange but I like the fact that some of the bigger warrant holders have done cashless exchanges (resulting in less dilution to existing shareholders).
Okay, someone here please explain to me why ROIC warrants have zero time value??? I just talked to my broker about costs associated with exercising a block of warrants (basically $30 for the block which isn’t much more than the $20++ needed to exercise a block of options). I also talked with my broker about the time it takes to settle warrants (basically up to four days to receive the certificates). Afterwards we ended the conversation with both of us scratching our heads; why the heck don’t ROIC warrants trade similar to options, (or for that matter warrants), in any other security? Where’s the time premium? In fact, looking at today’s close it would be cheaper for a new buyer to buy a large block of warrants and directly exercise then rather than purchase the stock (ROIC closed at $15.74 and ROICW closed at $3.69)… I told my broker that I can only think of two reasons why the warrants might be undervalued (negative to zero time premiums); the first is that the market thinks that the company is going to issue a special dividend (given to all but warrant holders) and the second is that the company has a hidden cost for the exercise of warrants. Apparently there aren’t hidden costs so what’s up here? Personally I’m now looking at the June 12th (?) ex-dividend date and may exercise some of my warrants before then. IMHO, if the company ever wants to do a share repurchase then they should seriously consider buying up their own warrants on open market. The lack of a time premium is crazy so the company should take advantage of that.
Assuming your warrants are held at a brokerage firm, to excercise the warrants you do it through their Reorganization Department ("reorg" is the common term). They can explain all the mystery and also, find out how much they charge, if anything for the transaction.
Thank you snotflier for the reply. The more I think about it the more I think about keeping the cash for other purposes until the company shows a need for cash. Right now I’m sitting on a bunch of warrants and they seem to be rising by five to ten percent per day (already up over 12% today). The dividend is pretty meaningless in comparison to those sorts of gains. In total I’m up over 225% in just a few months and that feels pretty good. I will probably convert my warrants to stock sooner rather than later, but only if it’s clear that there is an easy and inexpensive way to do so. For now, I’m happy knowing that both the stocks and warrants are rising. BTW, I started this thread because I think it’s rather silly that new investors aren’t purchasing the warrants and because the market is giving zero time premiums to the warrants. You have to admit that a 225% increase in a few months is a rather good increase when compared to a fifteen cent quarterly dividend… Of course, the problem with buying warrants is that a new investor might over do it and buy too many. When a bunch of warrants swing up or down the overall value makes big swings too (like 12% in one day vs 2.25% for the stock); we can’t keep having 12% up days so warrant buyers should beware. My recommendation for anyone considering the warrants is that they only buy as many warrants as they would stock and keep the remaining cash on hand for exercising the warrants in October 2014 or for rainy day emergencies between now and then.
You are right, I could just sell my warrants and then purchase the stock outright, but as a shareholder wouldn’t you rather see the company get the cash difference now rather than 18 months from now? Recent exercising of warrants is part of the reason why the stock has moved from $13 to $14… The more cash Tanz has to work with the more investments he can make. I like the idea of giving him my cash now, but if it is impossible then I may take option 1 and sell the warrants then buy someone else’s shares… By the way, the warrants may have zero time premium yet my investments in the warrants is now up 128% thanks to people who didn’t see their value when the stock was trading below $13… I may not be enjoying dividend increases but the price increase has been pretty nice. It’s been a great way to keep my foot in the door without the big initial investment, but I’m finally ready to make that purchase and am looking for the best way to do it.