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Politics : Ask Michael Burke
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To: Freedom Fighter who wrote (82970)8/15/2000 11:48:04 AM
From: Don Lloyd  Read Replies (1) of 132070
 
Wayne -

[...When Warren Buffet bought General Re he substituted a cash compensation plan for the existing options plan. That action lowered GAAP earnings by 50 million (I think that was the number). Was General Re worth some multiple of 50 million less because he did that? I think not. The employees received cash instead of something that could theoretically be sold by the company for 50 million in the market place. That satisfied them....]

The option plan was toast as soon as the company was taken private. I do think the cash-generating potential is significantly less without the option plan. All private companies suffer wrt public companies because they cannot take advantage of market mispricings. There is nothing to prevent the company from BOTH granting options and selling stock on the market. The fact that option granting companies are BUYERS of stock indicates that the selling of stock is NOT a real opportunity cost.

Regards, Don
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