Question

t Module XVII PIPE Transactions Name A PIPE Transaction is a Private Investment in a Public Entity. PiPEs ore often last resort financing tor traded companies in financial difficuity, but not yet in bankrupicy. Investors will make a private irvestment, often in the torm of Convertible Preferred stock or Converible bonds on the condtion that they can convert heir investment to common shares at their discretion and that those shares wil be regstered by the company so they may be sold to the public Thor Corporation, a 115 year old builder of industrial furnaces, Is In trouble: can't get a bank loan; can't sell bonds: and can't issue new stock. Ther current stock price has dropped to $8 from last year's prce 이 OS. They need $12 million to restructure into a more streamlined and profitable business. A hedge $12 milion in the form of convertible prefered stock: shares to be registered in three months and sold in sx months. If the hedge fund converts, they will own 3 milion shares ot Thor Corporation stock, it is anticipoted that by the time Thor's shares can be registered and sold, its stock price will drop to $7 per share. fund ogrees to invest 1. What will be the market value of the investor's Thor stock when they sell it of Thor stock 2. How much will the investor make in dollars of profit once they complete the sale 3. What is the investor's return on investment (as a percent of invested capital)? 4. What is the investor's annualized r money for six months? retum on investment considering the whole transaction only tied up her Note: About 25% of PIPE Investors lose their entre investment. Not al imestn do well

Answer 1

1) Market value of the investors Thor stock will be -

3 Million Shares X $7 per share = $ 21 Million

2) Investor will make -

Market value of stock $21 Million - Investment done $12 Million = $ 9 Million

3) Return on investment = $ 9 Million / $ 12 Million = 75%

4) Investors annualized return considering 6 month locking is 75% X 0.5 (half year) = 150%