<Well, the underwriters sure are trying. But consider: more than
5% dilutution damages earnings estimates too noticeably. 5% today
would get AOL about 4.6m shares worth. >
I agree that 5% is not enough to provide a decent cushion. I think it will have to be bigger than that, and the interesting dynamic will be to see how shareholders react if it is as high as 20%.
If shareholders buy into the idea that the advertising model, over time, can create a $70 stock, they may be willing to accept this type of dilution.
Think of it. The main drag on AOL right now is the cash flow concern. There is no way that advertising is going to produce fast enough revenue this year. Most people realize that. But many, including myself, think that two or three years out the ad revenue model makes sense.
Even at the cost of 20% dilution, I consider that cheap in order to get access to equity capital. I don't know how the ownership breaks down, but I suspect most people are like myself with low basis in AOL. (It was only $11 two years ago, and many people who foolishly bought at the high cost of recent years have probably sold to recognize losses against other gains in a good stock market.)
So if you have a low cost basis (like management, by the way), and if you believe that in two years the ad revenue model makes sense and the network problems are solved, why worry about 20% dilution if it gets you the cash now? Throw in the huge short position and the new love of Wall Street for the concept, and things look promising.
That's how I look at it anyway.
Regards,
LordDarley
PS And those lawsuits, for which there is now little likelihood of multiple damages or attorney fee awards, are not a concern for me. Single "damages", with plaintiffs responsible for their own attorneys' fees, is a recipe for easy settlement whenever AOL gets around to it. |
