WM raised $7 billion in April from TPG Inc., the Fort Worth, Texas-based private-equity firm run by David Bonderman.
The TPG deal itself may thwart investors. If WaMu is sold for less than $8.75 a share or is forced to raise more than $500 million in equity within 18 months, it must compensate TPG for the difference, according to filings with the U.S. Securities and Exchange Commission.
My bet is on something equal to or greater then what TPG invested ($8.75 a share) otherwise TPG will be upside down on their previous investment
Here are the details from the previous TPG/WAMU financing infusion deal
NEW YORK (Dow Jones)--The latest reported terms of Washington Mutual Inc.'s (WM) deal to raise $7 billion suggests private-equity cash is getting expensive.
Very expensive.
Of the $7 billion in new securities that WaMu said it will sell to TPG Capital and other unnamed investors, $5.5 billion will take the form of preferred issues that will convert to common shares at $8.75 apiece - a roughly 25% discount to market price - assuming shareholders approve the deal in coming weeks.
But here's the catch: According to CNBC's David Faber, if shareholders don't approve that conversion, the preferred shares could get even more expensive for the company to issue.
If stockholders were to vote against the deal's conversion, says Faber, those preferred shares will begin carrying a "very high yield.
"High enough...to make it quite hard for shareholders not to vote in favor," Faber says.
Faber also reports that TPG has promised to lock up its $2 billion investment for 18 months and, in exchange for that guarantee, will receive warrants to buy 57 million shares, after five years, at $10.06 per share - a discount of roughly 17% off current market prices.
WaMu shares were recently trading at $11.83, down roughly 10% from Monday's close price of $13.15.
A Washington Mutual spokesman didn't immediately return calls for comment.
-By Marshall Eckblad, Dow Jones Newswires; 201-938-4306; marshall.eckblad@dowjones.com
> Dow Jones Newswires
04-08-08 1539ET
