ERG:
Everybody's doing it. AMP just filed for a piddly $1.0 billion. What do you want to buy....stocks?....bonds? convertibles? Warrants? whatever colour or type of wall paper you want to buy, their shelf registration has it for sale. Call it the IBM syndrome.
I need a bit of help here. Now let's see.....a company is expanding, so it decides to sell stock. It gets into a row with the underwriter who tries to beat the price down a bit (the company wants to sell its paper for every dime that it can get). In the end, an agreement is reached, and the company sells stock to the public. Fast forward to current times. Now we are into a new paradym where the public can't get enough of the stuff. The paper is worth orders of magnitude more than when the company sold it, but now the company begins to buy the paper back, using its precious cash, or perhaps borrowing to do so. It pays ten times more to buy the paper back than the price at which it originally sold the paper to the public. Oh, one further point. Even as the company is buying back this expensive paper, it is offering to sell some equivalent paper to the public AT A DISCOUNT , and through a different window. Either that, or it will take on debt and pay interest on borrowed money to buy back that paper, in the process replacing the money that it used to have in its treasury before it began to buy up its stock, and on which it didn't have to pay interest. Have I got it right?
Clever, very clever. Sure keeps the money in circulation.
Where is Louis when you need him to make everything clear?
Best, Earlie |
