At A Premium
What is 'At A Premium'
"At a premium" is a phrase attached to a variety of situations where a current value or transactional value of an asset is above its fundamental value. The full phrase would be company X is trading at a premium to company Y, or a commercial building was sold at a premium to its underlying value, etc.
BREAKING DOWN 'At A Premium'
"At a premium" denotes excess value. For illustrative purposes, the description is commonly applied to situations such as:
- A company or investment entity bought another company at a premium of ___%. Example: Celgene Corporation announced its acquisition of Juno Therapeutics Inc. at a premium of 91% to its trading price in January 2018.
- A company or investment entity made a tender offer to buy a company at a premium of ___%. In October 2016, Qualcomm Inc. made a tender offer to buy NXP Semiconductor NV at a premium of around 34%.
- Callable bonds trading at a premium to its par value, reflecting additional reward for bondholders who bear the risk of early bond redemption.
- A closed-end fund is trading at a premium of ___% to its net asset value (NAV) per share.
- A real estate property was sold at a premium of ___% to its NAV.
- Shares of company A are trading at a premium to shares of company B, which is in the same industry. Example: If the price-earnings ratio of Costco Wholesale Corp. is 25x and Walmart Inc.'s P/E valuation ratio is 16x, Costco stock is trading at a premium to Walmart's stock.
- Commodity from one source is priced at a premium to the same commodity from another source. Example: Brent crude oil from the North Sea traded at a premium to West Texas Intermediate (WTI) crude oil from North America from 2011 to 2014.