Amy said:
On a different note, why is Cisco promoting an option package that only institutions can buy - why not regular investors?
Simple: To lower the value of options given out, so that earnings will be less reduced, when they have to start deducting the value of options.
Now, don't get me wrong: Black-S is giving a value that is probably higher than the true valu of the ESO's given, based on the fact that ESOs are NOT transferrable, and you can be forced to excercise them at an inopportune time, since they have to be excercised when you leave the company, and in case of a lay-off that is *very* likely to coincide with a low stock price (why else have a lay-off) etc.
I think what Cisco is trying to do is to make it believable that BS's value should be reduced by some (large?) factor, for accounting purposes in regards to ESO valuation.
Here's another thing that bothers me: this stock repurchase program that they are on - the result of this is that stock prices are rising even if all fundamentals are the same. This is NOT the same as giving out dividends, since ESO's really is a "tax on shareholders that is proportional to the increase of the stock price". That means that ESO is "unfair" or "un-deserved" (from a shareholders p.o.v.) when the share increase is the result of general inflation or stock repurchase. I don't mind being "taxed" on real share increases; with "real" I mean increases in the discounted free cashflow (or increases due to other enhancements in Cisco's market value).
The problem with share increases due to buybacks is that the market value hasn't changed: Cisco is still worth X, but now X is divided by fewer shares, thus each share is worth more. Buy backs is essentially the same as a stealth reverse split, for which the ESO holders are being rewarded.
One way of resolving this would be to adjust upwards the strike price of options, in proportion to the reduction in outstanding shares.
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