Please help me understand the conversion of DIMEQ into WAMUQ.
I'm missunderstanding the calculations....but I'll give it a try with today's numbers.
If ~$382M was set aside for DIMEQ LTWS, and the conversion ratio of 1.1232 holds. Walking through the math:
And assuming:
Tax rate = 40%
Legal expenses = $35M (random # thrown in, adjusted up from $26M)
LT taxes = 15% (hence the 85% below)
30-day running avg = about $0.05, despite the recent run up to $.08
Dime Exchange ratio = 1.1232
Adjusted Litigation Proceeds:
= 85% * ($382M - $35M - $152M) = ~$195M
Merger Adjusted Stock Price:
=(30-day Running Average Price * Dime Exchange Ratio)
=(~ $.05) * 1.1232 = ~$0.05616
One LTW:
=Ajusted Litigation Proceeds/(merger adj. stock price * 112,975,597)
=$195M/($0.05616 * 112,975,597) = 30.7342 Shares
Accordingly, upon converting a warrant into shares:
1 LTW = 30.7342 WAMUQ.PK shares
Now, this leads to an arbitrage question. As of 5/21/2011:
(these market prices are approximate, subject to change)
1 LTW = ~$0.60
1 WAMUQ.PK share = ~$0.08
Consequently, 1 LTW :
= 30.7342 WAMUQ.PK shares * $0.08 price-per-share = ~$2.4587
Shouldn't the market price DIMEQ around $2.4587?
Another way of looking at this, I can spend $0.60 for a conversion potential of 30.7 WAMUQ.PK shares.
But, with $0.60, I can only buy 7.5 shares of WAMUQ.PK.
Makes me wonder...
1. Are DIMEQ prices trading below parity($0.60 vs. $2.4587)?
2. Or, let's reverse engineer the calculations...
1 WAMUQ.PK price-per-share = DIMEQ market price / conversion ratio
1 WAMUQ.PK price-per-share = $0.60/30.7342 = $0.01952
Is 1 WAMUQ.PK share overpriced, where fair value should = $0.01952?
PLEASE, PLEASE, PLEASE...correct my assumptions, as they are just assumptions. Anyhow, am I applying the calculations correctly?
