Twillowy:
The Barrons piece is, as usual, full of BS:
(1) How can PALM's advance "work against shareholders"? Aren't we all as happy as fleas in a sandbox that PALM has advanced? Let's hope PALM advances another $10 or $20 and works against us some more.
(2) As several of us have pointed out, the value of COMS = COMSV + 1.484 PALMV. When Barrons says that the "when issued 3Com stock trades for $5 above the theoretical value of the 3Com stub", they're wrong, because they're using the trading value of PALM instead of PALMV.
(3) As I noted in my previous post to DMA, his comment that COMS share dilution can not be used to dilute losses, only earnings, means that the effect of the "explosion" in COMS employee options on 7/28 will not be visible and will have no effect until 3Com reports earnings, which will not be until Q4 2001, i.e. next June. By that time, 3Com will probably have repurchased enough shares to nullify the effect.
(4) I believe that the 200 million dilution number cited by Barrons is incorrect for the reasons outlined below.
I've now reworked the options numbers from my earlier post using the most recent info in the 3Com D-ratio PR:
(1) As of 7/11/00, there were 37.3 million COMS employee options outstanding, of which 3.5 million are held by PALM employees and will disappear on 7/28. Net total left outstanding will be 33.8 million in COMS employee hands.
(2) 10.7 million are vested and exercisable, of which 1 million are held by PALM employees. Net total left exercisable after 7/28 will be 9.7 million in COMS employee hands.
(3) If the present $73/$13 hold for COMS/COMSV, the 9.7 million exercisable options at $27.48/share will on 7/28 become about 55 million options at an exercise price of $4.89/share, while the remaining 24.1 million unvested options will become 135 million. Final numbers and strike prices will be based on the COMS prices as of the 7/27 close and 7/28 open.
(4) As I pointed out in my post on 5/11/00 (#43193), my review of 3Com's prior 10Q's/10K's showed that only the vested but unexercised options appear to be included in the diluted share count. So the potential dilution would appear to be 55 million based on the numbers in (3) above. If the unvested options are included the dilution would be 190 million.
(5) The difference between the 4/24/00 and 7/11/00 employee options outstanding shows that only 3.7 million COMS employee options got exercised in that period, out of the potential total of 14 million. While I previously expressed the opinion that it was a "no-brainer" for COMS employees to exercise their options and get PALM, apparently around 74% of them disagree with me. Didn't they want PALM shares? Now they'll get a larger number of COMS shares at a lower exercise price but no PALM shares. They apparently believe that the potential gain from owning more COMS at the lower strike (purchase) price will give them a better gain than owning COMS + 1.484 PALM through exercising prior to 7/11. Hmmm, do they know something about COMS future that we don't? Or are they just betting on COMS hitting $20+ while PALM sits around $40-$50?
(6) I can't figure out how many shares COMS has repurchased thus far, but its not many. Share count has gone from 345,706,000 on 2/25/00, to 351,419,000 on 6/2, to 358,496,844 on 7/11, based on 3Com's published numbers. I may be able to figure out the repurchasing when they file the 10K in early August.
(7) If (6) is correct, it means that 3Com probably has the full $1 billion for repurchasing shares still available. If $13 is still the price on 7/28, they could handle up to 77 million, and easily offset the 55 million immediate dilution. If COMSV goes up by 7/27, the end result will be similar, because if the COMSV price goes up, the 55 million number comes down, exactly how much also depends on the PALMV price on 7/27.
My overall conclusion from all this is that the employee stock dilution issue is a non-issue. The potential dilution from the immediately vested and exercisable COMS options is only a fraction of the number arrived at in the Barron's article, will not affect 3Com's reported losses/share for the next three quarters, and in any event can be easily handled by 3Com's repurchase authorization.
Looks to me like EB & Co have this one in hand, and that Barron's is blowing its usual smoke. Which just convinces me that I was right to cancel my sub to their tabloid financial news rag.
End of another lengthy Taylor missive. Wait until you see the one I'm working on!
David T. |
