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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 87.23

+0.5%

12:30 PM EST

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To: Stock Farmer who wrote (55249)	9/16/2001 9:26:05 AM
From: RetiredNow	Read Replies (1) of 77400

That is exactly what I'm saying. When the increase in o/s shares is due to the net accretive purchase of another company, using stock to acquire that company is not a net dilutive event. See the thought experiment below. Company specs before acquisition: * Net Income = $1 million * O/S Shares = 1 million * EPS = $1 per share Acquisition terms: * 100K shares of above company for all o/s shares of target acquisition * acquisition is accounted for as a purchase, but all new goodwill is written off immediately * acquired company has EPS = $.50 per share, with 500K o/s shares and net income = $250K Combined company specs after acquisition: * Net Income = $1.25 million * O/S Shares = 1.1 million * EPS = $1.14 per share EPS after the acquisition actually increased, so the net effect of issuing more shares in this case were actually not dilutive to the combined company. Obviously, this is a simplistic example and doesn't take into account many variables, but the point is that the acquiring company absolutely makes these calculations with various sensitivity analyses to determine if the acquisition is going to be accretive or not. If they determine that it will not, then they don't make the acquisition. Even if they do determine that it will be accretive, oftentimes the acquisition ends up not being accretive due to various things that crop up that weren't anticipated. However, a company like Cisco is better than most at choosing the right companies and have a better than average batting average and acquisitions. That's essentially why many people make bets on Cisco's stock.

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