Very late Friday evening, Virgin Galactic (SPCE), which combined with Social Capital Hedosophia Acquisition Corp., announced they will be redeeming all of their public warrants that remain outstanding at 5:00 p.m. New York City time on April 13, 2020 (the “Redemption Date”) and are requiring a cashless exercise. 

There has been much debate among warrant holders about whether Virgin Galactic would call their warrants for cash or cashless exercise since the share price started trading above the call trigger of $18.00.  Some felt a “cash exercise” would win out since Virgin Galactic could use the cash now, but perhaps a capital raise in the near future (without a warrant overhang) is in the playbook instead.

Nevertheless, the Fair Market Value of $23.34, which is the average last sale price of the Common Stock for the ten trading days ending on March 10, 2020, the third trading day prior to the date of the redemption notice, has noticeably come down (along with the entire market) in the past week.  As a result, the dilution from a cashless exercise has been reduced compared to what it would have been if they needed to use a 10-day average when the share was trading in the $30-$37 price range.  For instance, a $30.00 ten day average would have meant warrant holders would have received 0.6167 of a share upon exercise as opposed to the actual 0.5073 of a share they will be receiving now.  Since Virgin Galactic has 23,000,000 pubic warrants outstanding, that equates to the difference of a little over 2.5 million shares.

Read below for all the details of Virgin Galactic’s warrant redemption:

WARRANT REDEMPTION

Under the terms of the Warrant Agreement, the Company is entitled to redeem all of the outstanding Public Warrants if the last sales price of the Common Stock is at least $18.00 per share on each of twenty trading days within any thirty-day trading period ending on the third trading day prior to the date on which a notice of redemption is given.

In addition, Virgin Galactic has elected to require that all Public Warrants are to be exercised only on a “cashless basis.”  Accordingly, exercising warrant holders will receive 0.5073 of a share of Common Stock for each Public Warrant surrendered for exercise. This is based on the “Fair Market Value” of $23.34, which is the average last sale price of the Common Stock for the ten trading days ending on March 10, 2020, the third trading day prior to the date of the redemption notice.

Any Public Warrants (including Public Warrants that are included in outstanding units) that remain unexercised at 5:00 p.m. New York City time on April 13th (the Redemption Date), will be de-listed, void and no longer exercisable, and the holders will have no rights with respect to those Public Warrants, except to receive the Redemption Price.  Furthermore, At 5:00 p.m. New York City time on the Redemption Date, the Company’s outstanding units (the “Units”) will be mandatorily separated into their component parts – one share of Common Stock and one-third of one Public Warrant – and the Public Warrants and Units will cease trading. As a result, at 5:00 p.m. New York City time on the Redemption Date, each Unit holder’s account, in lieu of Units, will reflect ownership of the number of shares of Common Stock underlying such holder’s Units.