Analyst Caitlin Long says the market was very efficient in marking the stock down 37% on Monday. She notes the news of UnumProvident's $3.6 billion of adjusted statutory surplus is effectively backed by $695 million of intercompany loans; the market reacted by shaving $1.1 billion from the market capitalization. Long says that $1.1 billion is roughly how much it would cost UnumProvident to replace the $695 million with "real" capital by raising equity at UnumProvident's current discount to book value.
Long cut the $2.30 2003 earnings per share estimate to $1.90 on the belief that UnumProvident will raise $1 billion via a 50/50 common/convertible offering at a cost of $7 per share. She cut the $11 target to $7 on dilution from new equity.