CE 1 | Business Valuation
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Session Description
What is Value of the Right or Obligation to Buy
More Shares? How Does That Impact My Common Stock Value?
Capital-intensive companies such as biotechs frequently structure investments
as “tranched preferred”, where the investors and the company agree to fund a
certain amount at the initial close, and an additional amount at a subsequent
date at a specified price if certain milestones are met. In these structures,
the company may have to report the fair value of the right or obligation to
buy/sell more shares in the later tranche. This session will explore a couple of
valuation approaches that have been used for these analyses and present a new
approach that takes into account various situations regarding the impact of the
required milestones and how the investors might proceed if the milestones aren’t
met. In addition, we will consider the impact on common stock valuation in a
tranched preferred structure.
Speaker
Amanda A. Miller, Ph.D. | Valuation Executive
Director | Ernst & Young
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Disclaimer: The opinions expressed in this presentation are
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