Walid Busaba, Zeigham Khokher, Guorong Yang
Ivey Publishing (W10025-PDF-ENG)
September 19, 2012
The Symantec Corporation Board of Directors has asked an advisor for an independent opinion on an important financial decision. Symantec had worked with several investment banks on a common stock debt buyback scheme. The consultant found it an interesting financing concept; While an immediate share buyback would increase Symantec’s financial leverage, a future conversion of the Notes would reduce leverage, which could result in significant dilution costs on the company’s capital. Interestingly, the company was negotiating with investment banks to buy a purchase margin on its own shares that would cover the same number of shares that would be issued to bondholders at the time of conversion. After examining the offer, the advisor tried to understand the motivation behind the structure of the transaction. Why would Symantec choose to issue convertibles and why did it intend to buy the call spread?
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