So essentially IDCC is just raising capital. The convertible feature and warrants are just making the interest rate payable on the bonds chearper because they are giving the bond holder the right to buy stock at a predetermined strike price. IDCC is then hedging that obligation by entering into agreement with another counterparty to purchase its own stock at a predetermined strike price. The counterparty is then managing its risk exposure by purchasing IDCC stock in open market since it is liable to sell stock to IDCC at predetermined strike price.
Is that really worth by going thru some many transactions to get the lower rate? I'm not really so sure about this. Looking at PANL, they just issued $250M worth of stocks at $46 each last week. It took one day pain, then everything went back to normal.
"InterDigital expects to use a portion of the net proceeds from the offering of the notes and the proceeds from the sale of the warrants to fund the cost of the convertible note hedge transactions. The remaining net proceeds from the offering of the notes will be used for general corporate purposes, which may include, among other things: acquisitions of intellectual property-related assets or businesses or securities in such businesses; capital expenditures; and working capital."
They may also use some of this to pay down more expensive debt.
Does anyone really understand what it means in the following?
In connection with establishing its initial hedge of the convertible note hedge transactions and warrant transactions and concurrently with, or shortly after, the pricing of the notes, the hedge counterparty and/or its affiliate expect to purchase InterDigital common stock in open market transactions and/or privately negotiated transactions and/or enter into various cash-settled derivative transactions with respect to InterDigital common stock concurrently with, or shortly after, the pricing of the notes ---
What does they hedge for?
It looks like they really want to outbid Nortel's LTE patents portfolio. Just curious about what will be the interest rate for this note offer??? Kodak has just sold a $250M notes last week with 10.125% interest rate. Also, PANL has issued a $250M worth of stock offer last week at $46 per share.
As far for the dilution of the common stocks from this offer, it will probably occur at maturity.
I wonder how shorts will react tomorrow for this. It'll be interesting to see.