Convertible bond plus call spread is the standard strategy to offset dilution to ultrahigh share prices, achieving fixed income-like accounting in an equity-friendly wrapper. ServiceNow, a fast-growing soffware-as-a-service company, was a textbook example of how far the strategy can be taken. Of the US$782.5m it raised in June on the sale of a five-year CB, the company spent roughly US$71m on the call spread - repurchase of the embedded call option and sale of warrants at a higher strike - and another US$55m to simultaneously repurchase stock, allowing arbitrageurs to delta-hedge participation and limiting eventual stock dilution.
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