Here's the exact data on the puts
If you are interested in the puts, please take the time to read this post. It's a bit long, but it shows conclusively that the impact of the puts is not material to NETA. See the paragraph at the end of this post for a summary of the impact.
Note: All data taken from the Q3/99, Q1/00, and Q2/00 NETA 10-Q forms at the SEC's web site.
August 1999, NETA sold 1m $20 puts for August 2000, and received $5.25m in proceeds. February 2000, NETA sold 1m in $30 puts for February 2001, and received $7.89m in proceeds. May 2000, NETA sold 1m in $24.07 puts for May 2001, and received $6m in proceeds.
Total puts written: 3m. The 1m August puts expired worthless. NETA pockets the $5.25m, and has no further obligation. The remaining 2m puts have an average strike price of $27.035.
Assuming that NETA's stock price remains at around $4.035/sh, NETA's cost after having the shares put to it and then selling them will be $23/sh x 2m shares = $46m, but of course the cost decreases when you take into account the money received from writing the puts in the first place.
Subtracting the $19.14m in proceeds that was received for the puts, the net cost of this piece of business for NETA will be $26.86m. Since NETA has somewhere between $600m and $800m in cash on hand, this will not materially affect the business. With about 140m shares outstanding, this equates to a one-time non-recurring cash charge of $0.11/sh in Q1/01 and $0.08/sh in Q3/01. I don't believe these will be charged against income, but if they are, those are the limits. To the analyst community, they are clearly nothing to do with the business moving forware, and have no material impact on the company.
If NETA chooses to raise new money by issuing new stock at this time, it would have to issue just under 6.7m shares to raise the money. Since there will be some employees (possibly including Larson, Watkins, and Goyal) who exit the company without exercising their vested options, the actual fully-diluted number of shares in the company may decrease prior to the expiration of these puts, so don't expect the number of shares outstanding to increase. However, if the number of shares outstanding does go up from 140m to 146.7m due to the puts, and also assuming that the amount is charged against revenues rather than cash, then the total impact in Q1/01 will be $0.006/sh (zero point six cents per share), and a further $0.004/sh (zero point four cents per share) in Q3/01.
The breakeven point for NETA for these puts is $17.465/sh. The closer to this number that NETA inches, the less impact the puts have. At anything above this number, the puts will have brought more money in than they cost to exercise.
Although $17.465/sh may be too high for NETA at the moment it equates to 3x year 2000 revenues. For comparison, companies that may be considering buying NETA or parts of its business in order to get at its substantial revenue stream, user base, and product set, have revenue multiples as follows. SYMC: 2.92, CSCO: 13.37, CHKP: 65.88, ISSX: 20.53, and so on. In other words, paying 3x year 2000 revenues is very reasonable for some potential suitors.
Whether NETA's board would let a breakup occur is another matter, but it would help resolve many outstanding issues that must be causing the board headaches at the moment.
In summary: the upper bound of the cost (ie: based on no rise from NETA's current price of ~~$4/sh) is about $27m spread over 2 quarters (Q1/01 and Q3/01), and can be mitigated by accepting a dilution of earnings of just over 1/2 cent per share in Q1/01 and just under 1/2 cent per share in Q3/01.
Sorry for the lengthly explanation, but it is a complex issue, and I want to make sure everyone knows that it looks to me like the results are non-material to the company. Certainly a silly move, but not materially damaging.
- Elephant |
