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 : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Satish C. Shah who wrote (24171)	4/9/1998 11:35:00 PM
From: RetiredNow	Read Replies (1) \| Respond to of 97611

Hi Satish. The previous example I gave was hypothetical. I don't know the real numbers of the deal. I do know how some deals are handled, though. Obviously, every deal is different. However, a lot of times the two companies agree on a set price - let's say for example, $100. Now, let's say both companies agree that company A's shareholders will get $50 in cash and $50 in the stock of company B, for the sale of A to B. If stock B is trading at $25 when the deal closes, then company B only has to give company A shareholders $50 and 2 shares. However, if company B is trading at $10, then company B has to give company A shareholders $50 and 5 shares. The problem is that when a company (B) has to give out more shares because their shares are trading at a lower price on the closing date, this dilutes the value of your shares even more because the company's earnings will be divided by a larger outstanding share base. That means EPS will go down and the market value of your shares will go down IN THE NEAR TERM. However, if the company that was purchased is making money, eventually, in the long term, its earnings will be accretive or added to the EPS of the acquiring company. That is why the share price that Compaq is trading is important in the near term.

To: Satish C. Shah who wrote (24171)	4/9/1998 11:46:00 PM
From: AHMAD AFTAB	Respond to of 97611

Satesh: DEC book value is around $23. You make an excellent point. Lower the CPQ share price at closing smaller the goodwill to be written off. However if CPQ wrirtes off goodwill over many years it will show a charge against EPS. The smart way of writing off goodwill is as a one time charge as extraordinary item without dilluting "income from current operations". The FASB and IAS (International Accounting Standards) favor the one time charge. This is of course my opinion.