MB -
Here is the funny part. If you are a co. and about to lose money, the puts you sold get turned into shares and a loss gets diluted by the new shares to something less. And all of the analysts will say: "the co. has a tough operating environment, but smart mgt. moves have helped them reduce losses below what we expected." Of course, if they ever recover, it will be hard to make eps growth with all those new shares.
For me the funny part is the description. If a company sells a put, and is routinely assigned without a side agreement, the result is anti-dilutive, with less shares outstanding as a result. At that point there is no difference between having repurchased shares at some price and having sold the puts at some net equivalent price.
Depending on the actual prices and the future stock price trajectory, this can be either tremendous or horrifying for shareholders.
The side agreements are the things that really defy logic. The company management is saying that we are willing to buy back stock now slightly below the current price, but if the price is decimated in the future, we want the ability to sell new stock instead at much lower prices..
Regards, Don |
