C&L Partners, LLC

C&L PARTNERS VALUES

We believe we will be successful if our clients are successful
• Put the client’s interest ahead of our own
• Behave as professionals
• Keep our client information confidential
• Tell the truth as we see it
• Deliver the best of our firm to every client as cost effectively as we can
 COMMUNICATIONS IS KEY
• This case will be revolving around bonds so before we begin we’ll ask three
questions to ensure everyone is on the same page.
 THREE QUESTIONS
• What is a bond?

• A debt investment in which a an investor loans money to an entity corporate or

government to finance projects and activities

• What is yield?

• The income return of an investment

• What is a coupons rate?

• A yield paid by a fixed income security. A fixed income security is annual payments
COMPANY HISTORY
• Founded in 1985
• The first in the biotech industry to create biologically derived human therapeutic
drugs, RENGEN AND MENGEN
• Both drugs helped offset the damaging effects from chemotherapy for cancer
patents
• The leading biotech companies by 2006
• Successful portfolio of products that focused on cancer care was made up of
drugs with the highest chance of treating patents.
MERRILL LYNCH EQUITY LINKED ORIGINATION
TEAM
• Team was a product group that focused on convertible, corporate derivative, and
special equity transactions for the clients of Merrill Lynch
• Helped educate clients on effects of utilizing equity-linked instruments
• Considered to be one of the most profitable businesses at Merrill Lynch
• MoGen was very important client to them; already did financing for them twice
WHAT IS CONVERTIBLE DEBT?
• A convertible bond is a type of security where the holder of the bond receives
coupon payments as if it were a normal bond, but has the right to “convert” it to
equity.
• Gives investors the safety of a bond and potential of gains from equity.
• Coupon rates are lower than regular bonds
• Have unlimited growth potential, with protected risk
CONVERTIBLE BOND EXAMPLE
A convertible bond has a face value of 1000 and maturity of 10 years. It has the
coupon rate of 5% and Company A’s stock price at the time it was issued is $40.
The conversion price for the bond is $50.
• Customer receives coupon payment of $50 (1000 X 5%)
• Customer can convert bond for 20 shares ($1000/$50)
• Conversion premium is 25% (50-40/40) (how much price has to increase to
realize gain)
• If stock price goes up to$ 60 and customer converts, customer can sell 20 shares
at $60 for $1200
• If stock price goes down, they can wait to maturity date and receive coupon
payments and $1000 face value.
MOGEN’S FINANCING NEEDS
Mogen needed to make sure they had a consistent amount of cash for R&D in the
event of uncertainties and possible challenges. They concluded they needed 10
billion dollars in funding for 2006 for the following areas:
1. Expanding Manufacturing and Formulation
2. Expanding investment in R&D
3. Acquisitions and licensing
4. Stock Repurchase program
 EXPANDING MANUFACTURING AND
FORMULATION
• MoGen is unable to keep up with the demand of drugs proceeds and have been
unsuccessful
• MoGen has been unsuccessful with their increase in production due their
outsourced companies inability to expand their operations
• The majority of Mogen’s drug formulation, fill, and finish are outsourced
• MoGen’s request for funding will remove dependency on outsourced companies
EXPANDING INVESTMENT IN R&D
• R&D stand for research and development
• Mogen is currently undertaking 5 drugs currently in their R&D phase
• Trials costs are in the area of $500 million
ACQUISITION AND LICENSING
• MoGen acquisitions and licensing deals have helped it achieve the storing growth
in revenues and earnings per share and allows the company to stay viable
• The company decided to contiue their strategy of acquisition and licewnsing and
plan to purchase Genix, Inc. in 2006 for $2 billions in cash
• After an average seven years of R&D and three levels of testing by the FDA is
solidified by licensing that allows the company to receive a profit
THE STOCK REPURCHASE PROGRAM
• The purpose of this program is to show share holder and the companies
promising future and alleviating the company of paying regular dividend payouts
• This initiative to repurchase stock has been pushed by senior management
• In 2006 Mogen purchased the rest of outstanding shares for $4.4 billion
STATEMENT OF THE PROBLEM
MoGen wants to issue 5 billion of convertible debt. Dar Maanavi suggests that they
offer the debt with a 25% conversion premium at a price of $97. The board feels
that this is too low and send a bad signal to the market. This signal is that they
feel their share price does not have potential. Maanavi and the board need to
figure out a suitable conversion rate and coupon rate that will still attract
investors.
FIND COUPON RATE AND NEW SHARES TO
ISSUE IF CONVERTED
• We start with 3 different conversion rates: 25%,35%, and 45% with conversion
prices of 97.48, 105.27, and 113.07
• They previously had a convertible bond premium of around 15%, which makes the
convert price at $90 . The interest rate was 1.125%
• Find the percentage change from previous convert price for each situation. Use
that percentage change to show the assumed change in interest
• New shares to be issued = Amount of debt to be converted/ Conversion price
EXHIBIT ONE
Exhibit 1
Covertable Bond Calculations
Face value 1000
Current Stock Price 77.98
Amount needed 5,000,000,000

Conversion Prem. 0.25 0.35 0.45

Conversion Price 97.48 105.27 113.07

Coupon rate 0.0122 0.0131 0.0141

Interest Paid Per year 61000000 65500000 70500000

Shares issued if converted 51,295,204 47,495,559 44,220,003

New Shares Outstanding 1,251,295,204 1,247,495,559 1,244,220,003
EXHIBIT 2
Exhibit 2
Current 25% 35% 45%
EPS 3.06 2.94 2.95 2.95
PE Ratio 25.47 36.52 39.32 42.12