Owens Corning has finally gotten a definite figure on its asbestos liability claims, and also offers an olive branch to existing shareholders… But is it worth investing in yet?
The agreement assumes a total recovery value of $8.576 billion, consisting of the total enterprise value of $5.858 billion, assumed excess cash of $1.250 billion, and Fibreboard trust and asbestos trust assets of $1.622 billion, less existing debt of $55 million and $99 million in assumed value of new shares reserved for employee incentive programs. 131.4 million shares of new stock will be issued with an aggregate planned value of $3.942 billion. Based on the expected enterprise value of $5.858 billion, we can expected a share price of approximately $44.58/share.
The agreement also has ammended the company’s position on current shareholders, saying that existing shareholders will receive 7 year warrants to purchase 5% of the fully diluted shares of the reoganized company at $45.25/share. What exactly does this mean for investors? For every 1,000 shares of OWENQ that you own, you are entitled to 130 shares of the new stock at $45.25/share for up to 7 years. So, OWENQ has now effectively become a long-term LEAP option on Owens Cornings long-term prospects. Since the new shares are being priced at $30/share (the price that bondholders will receive), $45.25 may not seem like such a great deal, even though warrant-holders do have 7 years for the investment to work out. In the end, it may still be better to sit back and wait for the final dust to settle then reevaluate once the new issue comes to market. Now, if you can get the stock at $30/share you know that’s probably a great deal because DE Shaw & Co. and other big investors have agreed to backstop Owens Corning’s new equity at that price if there is any left over.
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