It seems to me that the only real dilution caused by the secondary involves the 2 million shares to be offered by the company. I think (please correct me if I am wrong) that the remaining 1 MM shares to be offered by management are already included in the EPS calculation. Using these numbers as a springboard, I have engaged in some rough number-crunching.
Assuming that the 1 MM shares owned by management are already included in the EPS calculations, then the EPS should be diluted by about 26% (~7.5 MM shares outstanding to ~9.5 MM). Applying this dilution to the 1998 estimates of $1.42 lowers those estimates by .37 to about $1.05. The proceeds from these 2 MM shares, however, will not be thrown away. Instead, the 2 MM shares should bring the company about $60 MM (assuming a $30 offering price). Even if the company does nothing with this money (does not buy other cable companies, expand current operations, etc.), the cash would generate interest of about 5% annually. Five percent of $60MM is $3 MM a year, or about .32 a share, bringing 1998 EPS back to to $1.37. Although this is not all operating income, it is nonetheless brings us close to the current 1998 estimates. As a kicker, the extra cash will strengthen the JPMX balance sheet, and position it to take advantage of future investments as the opportunities arise. Sounds like a good deal to me, so I bought today at 30.
Do you agree with these calculations or did I miss something? |
