Preface

This book tries to fill a gap in the financial literature. I was always frustrated by the lack of public information available on strategic equity. However, it is not surprising. Strategic equity transactions take place behind Chinese walls because often these transactions are highly confidential and market sensitive. Sometimes, investment banks and their clients try to avoid publicly disclosing a strategic equity transaction when it is part of an M&A transaction or aimed at circumventing specific accounting, tax and/or regulatory treatments.

The objective of this book is not to provide an exhaustive guide on strategic equity solutions. There are infinite possibilities in structuring strategic equity deals with different features in order to achieve a strategic objective. Instead, this book tries to be a useful reference and source of ideas. Although no two strategic equity transactions are the same, there are common threads that run through most strategic equity transactions (see Figure 0.1). This book is a summary of my work helping senior corporate and financial institutions executives to make sound strategic equity decisions in the following situations:

• Equity capital markets situations, especially regarding convertible bonds and mandatory convertible bonds.
• Hedge, yield enhancement and disposal of strategic stakes.
• Mergers and acquisitions.
• Stock options plan hedging.
• Equity financings.
• Share buybacks and other transactions on treasury shares.
• Bank regulatory capital arbitrage.
• Tax-driven situations.

Figure 0.1 Main strategic equity transactions covered.

I strongly recommend this book to:

• CFOs and treasurers of corporations who are about to make a strategic equity decision. This book will help to devise a value-maximizing strategy and to assess if the entity is able to bear the risks associated with its implementation. This book is also useful in making an independent evaluation of the merits and risks of proposed structures to the company by its investment banks.
• Equity derivatives, equity capital markets and corporate finance professionals at investment banks looking to identify new strategic equity opportunities to sell to clients, to propose to clients innovative solutions and/or to quickly gain a specialized expertise in the strategic equity field.
• Equity and credit research analysts looking to better understand the rationale behind a particular strategic equity transaction entered into by an entity. This book can be useful to identify potential risks stemming from the transaction.
• Private equity firms and hedge funds looking to profit from a specific strategic situation of a company. This book can provide ideas about how to maximize profit while reducing the associated risk.
• Accounting professionals who are looking to understand a financial transaction before deciding its accounting treatment. This book can be useful to suggest a change in the product profile so a more favorable accounting treatment can be applied.
• Legal/tax professionals who are involved in strategic equity transactions and who are looking to gain a deeper knowledge of these transactions. This book can also help to devise a certain solution with a more favorable legal/tax treatment.
• MBA students who are looking to broaden their financial knowledge. This book complements some of the financial courses taught in an MBA, such as corporate finance, financial derivatives and strategic management. This book can also be useful to MBA students seeking an equity derivatives or equity capital markets position at an investment bank, or a position in the treasury or strategic development team of a corporation.

Besides its financial orientation, the book has two important objectives: to be practical and easy to read. In order to achieve the first objective, the book uses an extensive number of cases, many of them real situations. In order to achieve the second objective, I have also included around 200 figures (yes, I am a bit of a masochist). I hope that the reader finds this book a useful reference.

The opinions expressed in this book are those of the author alone and do not reflect the positions of the banks in which he has been implementing his equity derivatives practice.