Extending the life of out-of-the-money warrant

Companies sometimes extend the life of an out-of-the-money (stock price is less than exercise price) warrant as it nears expiration. The exercise of warrants is a relatively inexpensive source of new capital for the firm. Management may not want to let the opportunity pass.

Extending the life of a warrant will immediately add value to it. A nearly worthless expiring warrant is likely to jump several dollars in value if the firm extends its life a few years.

The actual price change would depend on:

• the stock/exercise price relationship,
• the added term of the warrant, and
• the anticipated volatility of the stock over the extension period.