So, anyone, what might the sharecount be after conversion of SPS to common?
Using the same methodology in my common price estimation framework post
, FnF's combined share count after the conversion would be around 199B: 127B for Fannie and 72B for Freddie.
The math: the senior pref liquidation preference is around $230B right now, and the commons are worth $2.1B (all numbers are FnF combined). $2.1B / ($230B + $2.1B) = 0.009048.
1.8B (current share count) / 0.009048 = 199B.
199B * 1.15B (Fannie current share count) / 1.8B (FnF current combined share count) = 127B.
199B * 0.65B (Freddie current share count) / 1.8B = 72B.
Uncle is going to do all he can do maintain and also increase the value of his holdings.
A senior-to-common conversion means Treasury's interests would be opposed to, not aligned with, those of the existing common. Increasing the value of Treasury's holdings doesn't just mean a higher share price, it also means more dilution via the conversion.
With a historical median S&P price earnings ratio of 15, we could see shares in the mid-thirties at current earnings.
If "mid-thirties" means cents, perhaps. Otherwise it would take one whale of a reverse split.
(from another post)
Well, if Uncle is thinking about a conversion, it seems to me that he would need both the existing commons and a market that they trade in to make it work.
The existing commons only need to exist. They don't need to be worth more than a penny each though; a reverse split allows a reset up to any desired price.