Scott,
It is true that once warrants are in-the-money they appear in the "diluted shares" calculation ("fully diluted" and "primary diluted" are no longer used). However, companies that are not profitable on an ongoing basis do not report diluted outstanding, only basic outstanding. (The reason for this is that on an EPS basis, you report a lower loss the more shares you have outstanding, and so the warrants are viewed as anti-dilutive. IMO, this was a mistake by FASB, which should at least have required that diluted shares outstanding be reported instead of diluted EPS).
Further, the diluted share number, even it it was reported, would be less than the number of shares that will be outstanding after conversion. The reason for this is that the treasury stock method accounts for the dollars coming into the company by assuming they are used to repurchase shares.
However, I absolutely agree with you and the other posters that the company should force conversion. The conversion is going to happen at some point, and the warrants are already included in analysts' calculations. (Sometimes wrongly, though, as some analysts just add the warrants to the shares to get outstanding). Further, not forcing the conversion is essentially transferring equity from the common shareholders to the warrant holders. It is easy to see this by realizing that the warrant would be worth (considerably) more without the call provision, and so if the company declines to enforce the call, it is increasing the value of the warrants at the expense of the common.
Peter |
