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Technology Stocks : Wind River going up, up, up! -- Ignore unavailable to you. Want to Upgrade?

To: Pirah Naman who wrote (3444)	7/21/1998 4:35:00 PM
From: Allen Benn	Read Replies (1) \| Respond to of 10309

I think you'll agree that if they did not have the cash from the secondary and debt offerings, this would trigger your curiosity as well. It would not make me curious. I would be on a plane to Alameda to pound my fist on Dick's desk. I wouldn't be the slightest bit curious. Pirah, that's the point. Dick has much of the world's money to give him the freedom to do what he needs to do. The first rule of business is to preserve enough cash to weather any storm. He did that. Now he is unconstrained about making ECONOMIC decisions. We can say they are fighting dilution, or we can say that the anticipated return from share purchase is greater than that of the alternatives, but when we reflect on how that higher anticipated return can be realized, we are in effect saying the same thing. Not exactly. Management that has the resources and makes optimal investments by buying back stock is judged as excellent managers. Management that buys back stock to counter dilution, may appropriately be judged as trying to pump up EPS, a somewhat sneaky behavior. The result may be similar, but our judgment of the quality of management associated with a buyback program may differ diametrically, depending on the economics. With 100% conversion this would represent an additional 2.9M shares. True, but the $140 million is ours when that happens. Cash equity per share jumps to about $7.50, or about two or three times what I paid for most of my holdings. It is generally believed that stock is the preferred form of currency when the stock is overvalued. Yet from the standpoint of the acquiree, this would seem to make sense only if looking to cash out in the near future. But a rational acquiree (who should also have an above average sense for the business) might recognize that undervalued stock is likely to offer a more attractive return than other places they might invest the cash, and thus prefer to take the stock. You make a valid economic point, but the merger no doubt invoked the pooling-of-interests method. Unless I'm mistaken, that presumes an exchange of stock occurs. Had WIND merely written a check, they would have to try to write off much of the acquisition, or face (non-cash) amortization expenses for the foreseeable future. Allen