Conversion from Preferreds to Commons shares
Check this out.
This math considers conversion from Preferred to Common shares at both current prices and redemption value price in both a non taxable and a taxable account.
Here we go.
First Non-taxable holds
Common is $4 per share
A $25 preferred shares is $11 per share
Number of shares used in this equation 100,000 shares
Thus 100,000 shares x $11 per preferred share = $1,100,000
$1,100,000 / $4 per common share = 275,000 shares of common
275,000 shares x $30 (assumed appreciation of common share) = $8,250,000
$8,250,000 Happy Days!
Now hold $25 preferred share to redemption value then buy common
100,000 shares x $25 per preferred share = $2,500,000
$2,500,000 / $9 (future price) per common share = 277,778 common shares
277,778 common shares x $30 (assumed appreciation of common share) =
$8,333,000 Happy Days
Thus $9 per common share price would be a trigger point assuming you get to RV before commons hit $9 per share
Now lets look at a taxable account
Assume you bought the 100,000 shares for $50,000
100,000 shares x $11 per preferred share = $1,100,000
$1,100,000 - $50,000 = $1,050,000
$1,050,000 x .761 ( .239 long term capital gains) = $799,050
$799,050 + $50,000 = $849,050
$849,050 / $4 per common share = 212,262 shares of common
212,262 shares x $30 (assumed appreciation of common share) = $6,367,875
$6,367,875 Happy Days!
Now hold $25 preferred share to redemption value then by common
Assume you bought the 100,000 shares for $50,000
100,000 shares x $25 per preferred share = $2,500,000
$2,500,000 - $50,000 = $2,450,000
$2,450,000 x .761 ( .239 long term capital gains) = $1,864,450
$1,864,450 + $50,000 = $1,914,450
$1,914,450 / $9 per common share = 212,717 shares of common
212,717 shares x $30 (assumed appreciation of common share) = $6,381,500
$6,381,500 Happy Days!
Thus $9 per common share price would be a trigger point assuming you get to RV before commons hit $9 per share
Now I hope and I wish there is some major conversion ration of preferred to common say:
6 shares of common for 1 share of $25 preferred share
12 shares of common for 1 share of $50 preferred share
No tax hit for the conversion…
Then common shares go to $30 to $45 per share!
$25 preferred example in a taxable account:
100,000 shares of $25 preferred stock
100,000 x 6 = 600,000 common shares
600,000 x $30 (Ackman's projected value of one share of common) = $18,000,000
So what is your opinion on my math and conversion to common outlook followed by my little dream attach to the end?
