The Shocking Demiseof Mr. Thorndike

WM 69

Presented By:Arie FrederikFaula Iman SitompulHarish Adrian RiyantoIestin SB TambaLouisa Zephania Lukas

Mr. Rupert Thorndike, autocratic

CEO of Thorndike Oil, found

dead

Case Summary

The company’s capital structure as follows:• 5% debentures:

– $250 million face value– Mature in 10 years with 12% yield

• Stock:– 30 million shares– Closed at $9 a share the day before the murder

• 10% subordinated convertible notes:– Mature in 1 year and are convertible at any time

at a conversion ratio of 110.– Priced at 5% more than their conversion value

the day before the murder

Case Summary

Other information:• Before the murder, Mr. Thorndike was offered the

following:• All common stock would be bought off at $10 a

share• All debts issued would be paid off at face value• Holders of convertible notes could choose to

convert their shares

Case Summary

Case Summary

In $m 5% Debentures(Face Value)

Shares of Stock

10% Convertible Notes

(Face Value)

Doris 4 1.2 0

John 0 0.5 5

Patsy 0 1.5 3

Who stood to gain the most from his death?

5% Debentures – Before the Murder

Year

Annual Cash Flow(5% x $250

million)

PV(CF / (1+0.12)^t)

1 12,500,000.00 11,160,714.29

2 12,500,000.00 9,964,923.47

3 12,500,000.00 8,897,253.10

4 12,500,000.00 7,943,975.98

5 12,500,000.00 7,092,835.70

6 12,500,000.00 6,332,889.01

7 12,500,000.00 5,654,365.19

8 12,500,000.00 5,048,540.35

9 12,500,000.00 4,507,625.31

10 262,500,000.00 84,517,974.61

Total 151,121,097.00

0.604

PV at 12% of the 5%

coupon for 10 years,

plus repayment

of face value at year 10, is 60.4% of the $250 million

face value, or $151.12

million

5% Debentures – After the Murder

• $250 million face value, all paid off• Gain in market value of 39.6% (100% –

60.4%)

Stocks – Before and After the Murder

• Before: $270 million ($9 per share)• After: $300 million ($10 per share)• $1 Gain in market value ($10 - $9)

Convertible Notes – Before and Afterthe Murder

Before:• $990 per $1,000 note (110 x $9)• The bonds were trading at 1.05×990 =

$1,039.50• 103.95% of face valueAfter:• $1,100 per $1,000 note (110 x $10)• 110% of face value• Thus, the notes increase by 6.05% of face

value (110% – 103.95% )

Case Solutions

Before After Gain in Value

Debentures $151.12 million(60.4% of face value)

$250 million(100% of face value)

39.4%(100% - 60.4%)

Common Stock

$270 million ($9/share)

$300 million ($10/share)

$1($10 - $9)

Convertible Notes

103.95% of face value

110% of face value

6.05%(110% - 103.95% )

Case Solutions

In $m Doris John Patsy

5% Debentures(Face Value)

1.584(0.396 x 4) 0 0

Shares of Stock 1.2(1 x 1.2)

0.5(1 x 0.5)

1.5(1 x 1.5)

10% Convertible Notes(Face Value)

00.3025

(0.0605 x 5)

0.1815(0.0605 x 3)

Total 2.784 0.8025 1.6815

Doris gains the most from Thorndike’s death and receives $2.784 million in total