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Technology Stocks : Vodafone-Airtouch (NYSE: VOD)
VOD 14.71+0.8%Jan 29 3:59 PM EST
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To: MrGreenJeans who wrote (2156)11/23/1999 11:57:00 AM
From: Chuzzlewit  Read Replies (1) of 3175
 
Thanks for keeping us up to date with European views of the battle. I, for one, deeply appreciate your efforts.

Some comments on the following snippet from the article you posted:

High-tech companies are now so highly valued that they generally use shares, rather than cash for all corporate transactions (and in many cases for paying large parts of their wage bills as well). This is financially perfectly rational, because high-tech shares represent an almost free currency that the management of these companies can issue at will with almost no cost to their existing shareholders. And issuing new shares to keep buying up new businesses (or sometimes to attract new customers through loss-making promotions) can become almost obligatory, because high-tech companies must keep up their rapid growth records at all costs.

While there is some truth to this, there is also some falsehood. The combined company can be worth no more than the sum of its parts plus the sum of cost savings and synergies. Regardless of the currency used, if the latter do not emerge there is no point to the merger (other than megalomania). VOD is trading down around $10 (US ADRs) as a result of the takeover bid, because shareholders do care about the value they are potentially purchasing. Stock is not a free commodity. Issuance of additional shares dilutes. The reason that stock is issued is because, at today's valuations, it is a cheaper currency than cash. But it is not free.

TTFN,
CTC
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