Anthony @ Equity Investigations, Dear Anthony, Message Board

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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony,

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To: Paul Berliner who wrote (59732)	9/29/2000 7:05:08 PM
From: RockyBalboa	Read Replies (3) of 122087

To enhance its stock repurchase program, Microsoft sold put warrants to independent third parties. These put warrants entitle the holders to sell shares of Microsoft common stock to the Company on certain dates at specified prices. On March 31, 2000, 163 million warrants were outstanding with strike prices ranging from $69 to $78 per share. The put warrants expire between June 2000 and December 2002. The outstanding put warrants permit a net-share settlement at the Company's option and do not result in a put warrant liability on the balance sheet. Paul, I tried to translate that "under score" liability to put buyers into real values. Maybe the FAS could pay a critical look on such accounting methods (companies have to post a profit/loss item regarding conversion and exercise rights IF they commit to issue new stock depending on the stock price). It comes close to an exploding put conversion feature: Lets assume MSFTs stock price plummets to $25 and all puts (avg strike $75 for simplicity) are vested and ready to exercise. As MSPFT wants to preserve its cash box they elect cashless "net share settlement" (not buying the put shares at the exercise price but delivering new shares to make up for the settlement value). The result? The options are $50 in the money and there are 163MM of them. To settle the ITM value (163MM * $50) they have to issue about twice, that is 326MM shares (valued at 25). Assume MSFT trades at $5, then the $70 net settlement value demands the delivery of about 14 times the stocks puttable... that translates into 2382MM (newly issued) shares... If I got it right... maybe a MSFT financial guy could post any additions or corrections if any.

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