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To: mtnlady who wrote (33524)	10/22/2000 2:11:27 PM
From: Uncle Frank	Read Replies (1) \| Respond to of 54805

>> If Cisco's stock IS worth it's current market value then for Cisco to not use that market value is manipulating (legally of course) the books. As a Cisco stockholder I applaud every move they make to legally avoid paying additional taxes. In fact, I demand it. If the law changes, I expect them to comply, and look for other creative ways to reduce the tax burden. This isn't a moral issue. Don't you look for any legal means possible to reduce the check you send to Uncle Sam in April. Witness the year end tax selling we do in our personal accounts. uf

To: mtnlady who wrote (33524)	10/22/2000 3:04:41 PM
From: Thomas Mercer-Hursh	Respond to of 54805

First, if Cisco thinks that the market value of their stock is so out of whack that it's ridiculous to use their stocks value when they book the acquisition... The point has nothing to do with whether their stock is under or overvalued according to any particular theory. The point is that the market value of the stock is not a part of the operational financial statements. When Cisco makes an acquistion by issuing stock, they are paying for the acquisition by handing over a share in the company, just as they did when they were in the VC stage or at IPO when they handed over shares in exchange for cash. That market value is not a part of the operational finance of the company as reflected in the balance sheet and P&L. I.e., if, as the author seems to suggest, the market value of the stock used in making an acquisition should be reflected in these statements, then why shouldn't all of the current market value appear there? It doesn't because that value is value possessed by the owner of the stock, not Cisco. When Cisco acquires by issuing stock, they are in some sense coining money, i.e., creating something of value to someone else, and what stands behind that value is the expectations associated with the share of ownership, not something that came out of Cisco's operating budget. There is nothing deceptive or sneaky in this unless you have reason to believe that the value currently associated with that stock will soon be dramatically reduced because of information not yet public. Other than that, it is simply the case that companies with highly valued stock are being given a checkbook for acquistions which costs them little or nothing in terms of operational funding. Note that I am not saying that there is no difference between pooling of interests or stating it as an acquisition; there is. I am just saying that it has nothing to do with the huge market value of the stock involved. Think of it in terms of something small, without the mind-numbing figures involved in Cisco's transactions, say Joe's Eats, Inc. taking over Frank's Furters. In one scenario Joe might pay Frank cash for his business and the cash, possibly in the form of a bank loan, would show up on his books coming in and then going out to make the purchase. Separate from this, the books would reflect either merging the financial statements of the two companies or it would reflect the changes resulting from treating it as an acquisition. Some of these postings would be for tangible things like grills and buildings and bank debt and payables and such. But, it is quite likely that the "value" of the purchase has more to do with Frank having a choice location and loyal customers and maybe a secret sauce. That value isn't on Frank's books and it won't be on Joes, regardless of how it is posted. Now, take exactly the same transaction, but make the payment in stock -- the bank loan bringing money in and the check to Frank taking the money out go away and are replaced by issuance of new shares or by Joe turning over some of his shares. This changes how much of the company Joe owns and the percentage he can expect to benefit from future dividends or possibly a future sale when both locations are taken over by Starbucks, but it doesn't change Joe's operational books.