Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (69741)	10/29/1999 12:01:00 PM
From: Michael Bakunin	Read Replies (1) \| Respond to of 132070

..because secondaries benefit the company treasury, while options also benefit the company's employees. If you issue a secondary and earmark the proceeds for compensation, the secondary itself isn't an expense, but the following compensation transaction sure is. -mb

To: Don Lloyd who wrote (69741)	10/29/1999 1:50:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 132070

Don, This is the way I think about it in its most vanilla form. When a company issues shares, they receive the value of those shares in cash to invest. The additional cash should contribute to the future net income of the company in an amount that makes EPS better or the same as it would have been without the secondary offering. (hopefully) When a company substitutes options for cash compensation, they do not pay out in cash the theoretical value of those options. Reported earnings automatically rise by that amount. When those options are exercised, the company receives some proceeds from the person that exercised the options. The combination of the proceeds from the exerciser and the original extra cash (plus gains) should be enough to retire the share. So at the end (let's say) 10 years, the company will be in the exact position it would have been had it given cash instead of options. Thus the earnings were overstated initially. If they do not buy back the shares, they have the full proceeds of a share issuance right now, not 10 years ago when they didn't expense the option. Let me ask you a sort of joke question. If everything was paid for with options, should companies then trade at 30x revenues? Wayne