RAISING CONTINGENT CAPITAL: THE CASE OF CEPHALON
In early 1997, Cephalon, Inc., a biotechnology firm, purchased 2.5 million capped call options on its own stock, with a potential value of as much as $45 million, in exchange for $9.8 million worth of its common shares. Cephalon's first major drug, Myotrophin, was under review by the U.S. Food and Drug Administration, and Cephalon's management reasoned that, upon FDA approval, the company's stock would rise in value to reflect the future value of the drug, in which case the call options would pay off and the firm could use the proceeds to help fund commercialization of the drug. The managers thus viewed the call options as a form of "contingent capital," capital that would be available only if and when the firm needed it. 2002 Morgan Stanley.
Year of publication: |
2002
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Authors: | Chacko, George ; Tufano, Peter ; Verter, Geoffrey |
Published in: |
Journal of Applied Corporate Finance. - Morgan Stanley, ISSN 1078-1196. - Vol. 15.2002, 1, p. 57-70
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Publisher: |
Morgan Stanley |
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