Will Cap One Drink Its Own Kool-Aid?

December 2, 2009
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Yesterday, the Treasury put up more than 12 million warrants for Capital One Financial Corp. stock for sale at an exercise price of $43.13.

So who’s a possible buyer of the warrants? Try Cap One. Cap One writes in its prospectus:

We will be allowed to bid in the auction. If we decide to bid, we will participate on the same basis as all other bidders without receiving preferential treatment of any kind. We will be required to submit any bids we make through the auction agent. The submission of issuer bids may cause the clearing price in an auction to be higher than it would otherwise have been absent such bids.

As the prospectus states, an exercise price of $43.13 per share means Cap One’s “stock price would have to be more than $49.63 for [the investor] to have an opportunity to exercise the warrants and achieve a positive return on … investment.” (Deutsche Bank is running the secondary offering for Treasury.)

COF closed today at $38.35 per share. I can see the spreadsheets churning already.

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