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Tailored to the times

With so many corporates under pressure to raise cash, and understandably loath to sell off holdings at depressed prices in a weak market, the hunt for higher valuations is driving a wave of complex structured equity deals.

IN FEBRUARY, DEUTSCHE Bank launched a e1.06 billion mandatory exchangeable into USA Interactive, a subsidiary of Vivendi Universal. That doesn't seem a big deal: financial institutions are often able to access markets closed to other issuers. But beneath the surface this was not a straightforward transaction.

Though Deutsche provided the market with few details about the transaction, bankers at rival institutions deduced from comparing the terms and maturities of the warrants and the bonds that the seller was Vivendi itself. It had owned 60 million warrants in USAI since 2001, when it acquired some assets of USA Entertainment. On the back of a strong set of results from USAI, Vivendi was keen to raise some much-needed cash via a disposal. But it hardly took genius to work out that another exchangeable from the beleaguered French media firm would not go down well.

So instead of coming to market with a block trade in USAI or an exchangeable bond, Vivendi entered into a series of hedging arrangements with Deutsche Bank, the upshot of which was that it effectively disposed of some of the warrants - 21 million with an exercise price of $27.50

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