One accelerated placement, four reference prices, four discounts: what the choice of denominator is worth in euros.
A placing discount is 1 minus the placement price divided by a reference price, and the answer depends entirely on which reference you pick. Ardennes Industries placed 9,500,000 shares at EUR 40.55: that is a 4.81 per cent discount to the last close of 42.60, but 2.99 per cent to the thirty-day VWAP and 6.67 per cent to the close before the wall-crossing. The 3.68-point span is worth EUR 15,675,000, 3.70 times the commission.
Worked in full in Capital Markets by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Ardennes Industries is the fictional issuer of Capital Markets. Its accelerated placement was built overnight and priced before the next open. All four references are levels at which the shares actually traded; none of them is wrong.
| Input | Value |
|---|---|
| Shares already in issue | 118,000,000 |
| Shares placed | 9,500,000 |
| Placement price, EUR | 40.55 |
| Gross proceeds, EUR | 385,225,000 |
| Commission, 1.10% of gross proceeds, EUR | 4,237,475 |
| Thirty-day volume weighted average price | 41.80 |
| Last close | 42.60 |
| Five-day volume weighted average price | 43.12 |
| Close before the wall-crossing | 43.45 |
Discount = 1 − placement price ÷ reference price
Against the last close: 1 − 40.55 ÷ 42.60 = 4.81%
Discount in euros = (reference − placement price) × shares placed
= (42.60 − 40.55) × 9,500,000 = 2.05 × 9,500,000 = EUR 19,475,000
Excel: =1-Price/Reference and =(Reference-Price)*Shares
A volume weighted average price is the traded value divided by the traded volume over the window: =SUMPRODUCT(Prices,Volumes)/SUM(Volumes) on daily data. The window is a choice, and so is whether the day of the announcement is in it.
| Reference | Level | Gap per share | Discount | Discount, EUR | Times the commission |
|---|---|---|---|---|---|
| Thirty-day VWAP | 41.80 | 1.25 | 2.99% | 11,875,000 | 2.80 |
| Last close | 42.60 | 2.05 | 4.81% | 19,475,000 | 4.60 |
| Five-day VWAP | 43.12 | 2.57 | 5.96% | 24,415,000 | 5.76 |
| Close before the wall-crossing | 43.45 | 2.90 | 6.67% | 27,550,000 | 6.50 |
Nothing about the transaction changes down that table: the same shares, at the same price, to the same investors. Only the denominator moves. The span from the lowest to the highest discount is 3.68 percentage points, and in euros it is (43.45 − 41.80) × 9,500,000 = EUR 15,675,000. On this placement every cent a share on the reference is worth EUR 95,000.
The press release quoted the last close, which is the convention many announcements follow. But had it quoted the thirty-day average, the discount would have read 2.99 per cent and looked like a well-run deal; had it quoted the close before the soundings began, 6.67 per cent and looked expensive. There is no settled market rule on which window is the right one, so the choice is usually made by whoever drafts the announcement.
Accelerated placements are often discussed as "a 5 per cent discount", and the reference silently decides what that means in money. The table holds the share count at 9,500,000 and shows the price and proceeds a target discount gives off each reference.
| Target discount | Thirty-day VWAP | Last close | Five-day VWAP | Pre-sounding close |
|---|---|---|---|---|
| 3% | 40.55 / 385.2m | 41.32 / 392.6m | 41.83 / 397.4m | 42.15 / 400.4m |
| 5% | 39.71 / 377.2m | 40.47 / 384.5m | 40.96 / 389.2m | 41.28 / 392.1m |
| 7% | 38.87 / 369.3m | 39.62 / 376.4m | 40.10 / 381.0m | 40.41 / 383.9m |
The same "5 per cent" raises between EUR 377.2 million and 392.1 million depending on the reference. Read the other way, Ardennes' actual price of 40.55 is, to the cent, a 3 per cent discount to the thirty-day average (2.99 per cent unrounded). An issuer told "three per cent" and an issuer told "nearly five" can be describing the same trade.
Because a placement is sized in proceeds, the reference also moves the share count. Struck at the same 4.81 per cent off the pre-sounding close, the price would have been 41.36 and the same proceeds would have needed 9,314,154 shares, 185,846 fewer, which is the cost of the leak the book prices separately. That split, and why most of the bill never reaches an invoice, is in how much of an accelerated placement's cost is uninvoiced.
The first is computing the discount on the wrong base. (42.60 − 40.55) ÷ 40.55 = 5.06 per cent is the premium of the reference over the price, not the discount of the price to the reference; it overstates the discount by 0.24 points. The second is comparing discounts across deals without checking that they use the same reference: a 3 per cent placement against a thirty-day average and a 5 per cent placement against a last close can be the same trade. The third is negotiating the commission line by line and taking the reference as given. Here the commission was EUR 4,237,475; the choice of reference alone was worth 3.70 times that.
Always publish the discount with its reference, and when comparing deals, recompute every discount against the same one.
Switch the quoted reference yourself in the free workbook for this case: the discount, the leak counterfactual and the dilution move together.
Both are used, and there is no settled rule. Many announcements quote the last close before the bookbuild; others quote a five-day or thirty-day VWAP. On Ardennes' placement at EUR 40.55 the last close gives 4.81 per cent, the thirty-day VWAP 2.99 per cent and the five-day VWAP 5.96 per cent. Always state the reference beside the figure.
Multiply the gap between the reference and the placement price by the number of shares placed. Ardennes placed 9,500,000 shares at 40.55 against a last close of 42.60, a gap of 2.05 a share, so the discount is EUR 19,475,000, 4.60 times the EUR 4,237,475 commission. Each cent on the reference is worth EUR 95,000.
They use different denominators. The discount divides the gap by the reference, the premium by the placement price. For a price of 40.55 against 42.60, the discount is 4.81 per cent and the premium 5.06 per cent, so quoting the premium as a discount overstates it by 0.24 points.
This article is one calculation from Capital Markets. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: corporate finance, valuation and markets → · All 681 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.