I have no factual knowledge on the subject and even less of an opinion. I'm still waiting for the proponent to explain it clearly enough for me to understand it.
The only analogy that I can think of to clarify it is a cash dividend. A short has to pay that to the new shareholder BUT it comes out of the market price of the shares (automatically reduced by the dividend amount) so when it comes time to cover the share price has been theoretically lowered by the dividend amount.
I'm not sure how, IF (a big IF) the warrant dividend has any actual value, there would be any difference in how the market adjusts the share price for that.
IN THEORY, whatever the warrant is worth at the end of the non-tranferability period, the share price will be reduced by the same amount by the market itself. A short wouldn't care if he has to cover two instruments instead of one as long as the total cost is the same. If a short needs to buy the warrant during the non-transferability period, the same thing is true.
It seems as if, should the company actually do this (I CAN'T BELIEVE THAT THEY WOULD), current shareholders would essentially be making some of the value of the common inaccessible by putting it in the non-transferable warrant. Seems nuts to me.
Your turn:
What would happen to NAKED shorts facing a nontransferable dividend?
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