The warrants have a strike price of $6 and Global BPO is trading at $7.80, allowing the warrants to have an intrinsic value of $1.80 and time value of another $1.50 for a total of $3.30. However, the warrants only trade for $0.67. There are two main reasons they trade for such a low value, which we’ll get to later, but more importantly, there is a good chance that one of these reasons will no longer be a factor when shareholders approve the pending merger with Stream Holdings on July 29th.
The shareholder vote is important because warrant holders can’t exercise the warrants until shareholders approve an acquisition. Global BPO is a special purpose acquisition company, or “SPAC,” created to find an acquisition in the outsourcing arena. Earlier this year, Global BPO’s management announced a deal to acquire Stream Holdings. The deal looks like it is priced attractively, plus the CEO of Global BPO, Scott Murray, used to run Stream Holdings from 2000-2002 until he sold it to Solectron. Shareholders have a choice to approve the attractively priced acquisition and own shares in the ongoing company or vote against the deal and receive $7.93 in proceeds from the Global BPO’s IPO trust fund.
The recent history of SPAC stock performances after acquisition approval is horrendous, so it had seemed likely that shareholders would vote against the deal and warrant holders would have worthless warrants. However, in early June, Global BPO’s management increased the likelihood of shareholder approval by announcing an interesting deal with Ares Capital, a private equity firm. The deal would have Ares Capital pay $150 million for convertible preferred stock at $8. Global BPO would use the money from Ares to tender for 70% of its publicly-held shares. This event significantly increased the probability that shareholders would approve the deal, but it didn’t make the vote a foregone conclusion.
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