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.

Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: blankmind who wrote (26656)	12/6/1997 3:03:00 PM
From: swrdfsh	Read Replies (1) \| Respond to of 61433

<<so lu's stock would not decline, but may rise.>> when the rumors were flying LU did go up. So this does make some sense. swrdfsh

To: blankmind who wrote (26656)	12/6/1997 3:27:00 PM
From: Chuzzlewit	Respond to of 61433

Blankmind, here is how dilution in practice works out assuming a pooling of interests: calculate the combined capitalized value of the two merging companies before the merger announcement and add them together. Divide this number by the expected number of shares of the surviving company. This is the expected share price of the merged company. Now, go back and calculate the share value of the qcquired company using the surviving company's expected share price as the basis for the conversion. Here's a simple example. Suppose company A (who's stock is trading at $75 with 100 million shares outstanding) wishes to acquire company B (who's stock is trading at $40 with 50 million shares outstanding) by exchanging .8 shares of B for 1 share of A. The combined market cap is $9.5 Billion($75 x 100 million + $40 x 50 million), and there will be a total of 140 million shares after the merger (100 million plus .8 x 50 million). Now, $9.5 Billion / 140 million = $67.86 per share, which is where we expect A's stock to trade, and B's stock will rise to $54.29. Now, if the merger is viewed as accretive (meaning that the investment community sees immediate synergies in the merger), company A's stock will rise above $67.86 (and with it company B's stock). Notice that the P/E's automatically adjust, and you don't need to calculate them assuming blended growth rates. I hope this method helps. The important point is that in a pooling of interests you get an exchange of stock, and while journalists are fond of expressing this in dollar terms without the dilutive effects of the merger, that approach grossly distorts reality. Regards, Paul