There’s a bit of confusion over the fact that the Prime Computer Inc share price has plunged from around $18 to $12.875 in the wake of J H Whitney & Co announcing that it had accepted 49.5m shares for payment at $20 cash apiece: the reason the share price has now plunged is that the terms of the offer call for Whitney to exchange the remaining 13m or so shares out for $22 face value of subordinated debentures paying 15.5% interest and due to be repaid (at $22 apiece) in the year 2001; Whitney may say that paper is worth $22, but the market, wondering how Prime will find the cash to pay that high rate of interest on the debentures – in this case a polite term for junk bonds – reckon that the things are so risky that they are worth only $12 or so; all the holders who tendered Prime shares will get cash for most of them but will be stuck with some of the junk paper; the unfortunates who didn’t tender their shares will be left with the debentures alone.
