PSFT - Fiscal 1998 - Discussion for the next year Message Board

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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year

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Oct 29 5:00 PM EST

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To: The Player who wrote (3649)	11/20/1998 2:14:00 PM
From: Chuzzlewit	Read Replies (1) of 4509

The Player, it is really quite simple when you think about it. Let's take a hypothetical company, XYZ, with a market cap of $1 billion with 10 million shares outstanding. Each share is therefore worth $100. Now suppose that there are options that are suddenly 1 million options granted to purchase the stock at $80. Therefore, the number of shares would rise to 11 million, and the capitalized value would rise to $1,080 MM. But since there are now 11 million shares outstanding, the price of each share has dropped to $98.18. Now suppose that management decides (for whatever reason) that the options need to be repriced at $50. Now the capitalized value of the company drops to $1,050 million, again on 11 million shares, so the value of each share drops to $95.45. The impact, as you can see, is the fact that insiders are allowed to buy these shares at a price that causes the shares in the hands of existing shareholders to decrease in value. What I just demonstrated above was how management picked the pocket of previously existing shareholders by $27.3 million [(98.18-95.45)*10MM]. TTFN, CTC

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