Axa Mony Case

1. How did AXA finance the proposed takeover of MONY? Explain the financing plan in detail. How does the ORAN work? How was it distributed to investors? How was it priced at issue? What are the pros and cons of using this structure versus other means of financing? 

To fund the cash offer, AXA issued 110,245,309 ORANs (Obligations Remboursables en Actions ou en Numéraire). These debt securities of AXA had an unusual structure.

If the AXA-MONY takeover deal was not completed by December 22, 2004, then the ORANs would pay off their nominal or face value of €12.75, plus interest at Euribor. But if the takeover deal went through, then the ORANs would each convert into one share of newly-issued AXA stock. The total value of the ORANs issued was around €1.4 billion ($1.7 billion).

The ORANs were not sold publicly but rather offered through a rights issue to existing AXA shareholders. Shareholders would receive one warrant for every AXA share held, with 16 warrants entitling the holder to purchase one ORAN at a price of €12.75.

The advantage of using this method is that AXA would not be left with any new equity financing on its book if the deal fell. The disadvantage might be that long lag between merger announcement and final consummation would expose MONY stockholders to large potential fluctuations in the value of ORANs.

2. How is ORAN priced on February 9, 2003? What does this pricing tell you about the likelihood that the deal will succeed? How has this likelihood changed over the course of the previous months? 

ORAN’s price on Feb. 9th is €16.60

3. On February 9, MONY stock is trading for $31.55. Why might that be? 

4. Suppose you were an investor with a long position in the ORANs. How might this affect your interest in buying or shorting MONY stock and at what price? Why? 

5. Suppose that you are the manager of a $2 billion hedge fund with a significant stake in MONY and on February 9, you receive a telephone call asking to buy your...