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Technology Stocks : Dell Technologies Inc.

DELL 140.77

+1.4%

Nov 12 3:59 PM EST

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To: Bill F. who wrote (169563)	5/8/2002 12:48:21 AM
From: stubba	Read Replies (1) of 176387

Bill F. - I think you are missing some very important facts in your analysis. The change in stockholder equity generated by stock buyback is not determined by underlying share price. Your magical $27 share price is absolutely irrelevant. The only factor will be the price DELL actually pays for the shares, which is locked at about $45 per share because of put obligation or $51 per share because of calls purchased. Even when DELL was buying back shares at price much lower than current mkt, the actual cost of buyback was direct reduction in shareholder equity. DELL will have acquired 1 billion of their own shares for about $12.50 per share over life of buyback program. I'm certain many tech companies wish they could claim the same. Unfortunately over this same time period, weighted average shares outstanding have only been reduced by about 300 million shares. So the other 700 million shares have essentially funded stock option exercises. This seems rather exorbitant but if you apply some simple math the results are quite interesting. 700 million times $12.5 equals about $8.75 billion but let's not forget that DELL actually did receive cash for the strike upon exercise let's also not forget that the gov't provides DELL with a 35% tax deduction for diff between strike and exercise my calc is by no means scientific, but let's assume that on avg DELL has received $3 from employees as strike upon exercise and let's also assume the diff between strike and exercise has been around $20 on avg. that would make tax benefit around $7 ($20 times 35%) if you add the $3 received from employees upon exercise plus the $7 gov't funding generated by tax deduction you come up with $10. so the $12.50 per share buyback cost for the 700 million shares needed to fund options can be reduced by $10 to come up with more reasonable after tax cost to DELL. interesting ???

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