In an attempt to enhance its financing position in the capital market, Zions Bancorporation (ZION) on Dec 22, 2009 announced its preliminary results of the stock exchange offer from its Series A Floating-Rate Non-Cumulative Perpetual Preferred Stock (Series A Preferred Stock) to its common stock. The company had offered approximately 5.6 million outstanding Depositary Shares representing its Series A Preferred Stock to common stock, with an aggregate liquidation preference of approximately $140 million. The exchange offer expired on Dec 21, 2009.
Post exchange offer, each of Zions’ Depositary Share represents a 1/40th ownership interest in a share of Series A Preferred Stock with a liquidation preference of $25.00 per Depositary Share. This is equivalent to $1,000 per share of Series A Preferred Stock.
According to the preliminary information provided by the exchange agent for the exchange offer, D.F. King & Co. Inc., 51.29% of the Depositary Shares outstanding were validly tendered and not withdrawn in the exchange offer. In the aggregate, Zions’ board has decided to issue 2,816,834 shares of common stock, representing approximately 1.96% of the number of common shares outstanding as of Nov30, 2009, in exchange for the tendered Depositary Shares.
The company will pay cash instead of any fractional shares. Additionally, Zions will also pay cash for accrued and unpaid dividends to all Depositary Shares accepted in the exchange offer. However, this will exclude the settlement date. After settlement of the exchange offer, Zions will hold 2,718,072 outstanding Depositary Shares, representing 67,951.8 shares of series A Preferred Stock.
Deutsche Bank Securities Inc. (DB) and Goldman Sachs & Co. (GS) acted as Zions’ financial advisors in connection with the stock exchange offer.
We believe that at this financially critical juncture, the exchange offer program can increase Zions’ net income available to common shareholders, which the company would otherwise be liable to issue to its floating-rate non-cumulative perpetual preferred stockholders. It could also provide the company with some tax benefits. However, dividend payment on such Depositary Shares could have a neutralizing effect. Further, excess dilution could also impact the earnings per share in the hands of the investors.
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