Learning objectives
By the end you can:
- Apply four tests to any announced corporate event and separate a genuine dislocation from a discount the security deserves: a named price-insensitive seller you can size in days of trading volume, a gap to a conservative value that survives the cost of carry, a dated mechanism that closes the gap, and an honest answer to what the seller knew.
- Work a rights issue end to end: the theoretical ex-rights price, the value of the right per new and per existing share, and the wealth of a holder who subscribes, who renounces and who does nothing, with the three outcomes reconciling to the rupee.
- Compute the promoter stake before and after a rights issue under full subscription, under partial public take-up with the shortfall absorbed, and under a scaled-down issue, and price the value that moves between the two groups.
- Value the securities distributed in a deal: a low-coupon note priced off a comparable yield, and a warrant priced with a dilution-adjusted option model, then invert both market prices into the implied yield and the implied volatility that the forced sellers are accepting.
- Build a leveraged recapitalisation and the stub it leaves behind: the special dividend, the post-recap leverage, the stub's share of enterprise value, its effective leverage, a five-outcome value ladder, and a position size that satisfies a stated ruin constraint rather than a Kelly fraction.
- Compute a liquidation value asset by asset with defensible haircuts, wind-down costs and the full liability stack, then cross-check it against a private-market value from precedent transactions and a going-concern discounted value, and say which of the three anchors binds and which is the floor.
- Classify a company into one of six categories and write the sell trigger the category demands, computing the trigger price where arithmetic supplies one: a stalwart's ceiling multiple, a fast grower's de-rating, a cyclical's mid-cycle multiple, a turnaround's justified price-to-book, and an asset play's discount.
- Run Buffett's one-dollar test over a decade with the issuance and buyback adjustment shown, state the pass-fail reading, and quantify how much of the answer came from multiple re-rating and how much moves if the window shifts by one year.
- Write a two-minute drill and a set of pre-registered sell criteria for one company, and score a governance gate that decides whether an Indian restructuring creates value for every holder or moves it to a controlling family.
- Name the structural reason these mispricings persist, and say honestly which of them a person managing other people's money on a quarterly reporting cycle can and cannot act on.
Prerequisites & connections
Builds on. M1.03 for the equity build, rights and bonus issues and the reserves that fund them. M0.02 for the theoretical ex-rights price at its simplest, which is extended here into the promoter arithmetic and the renunciation decision. M3.06 for comparable companies and precedent transactions, which supply the private-market anchor. M3.10 for sum-of-the-parts, the Indian holding-company discount, distress and equity as an option; M3.10 keeps the spin-off and separation mechanics and this node cites rather than rebuilds them. E11.01 for the credit waterfall, covenants, recovery and the fulcrum security. E11.02 for deal anatomy, sources and uses, accretion and dilution, spin-offs and merger arbitrage. E11.04 for the promoter-group map, the related-party web and the disclosure ladder that the governance gate here depends on. M9.01 for position sizing and the ruin constraint that caps every stub in the practice set. M6.01 and M6.02 for the schools themselves, whose unfinished drills this node completes.
Feeds forward. E11.05: Market-Level Valuation, the Index Default and Your Own Policy is the sibling elective and the natural pair. That node decides how much of a portfolio has no named edge and therefore belongs in an index, and it writes the allocation band and the rebalancing rule that a policy needs; the drills here decide what the remaining sleeve is allowed to hold and at what size. M9.03 takes the category sell triggers written here into the full five-reason sell framework. M8.02 and M8.06 take the two-minute drill into the teardown and the document lab. M10.01 and M10.02 are where a special situation, if you find one worth the words, becomes a written thesis.