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Scenario 1: B's existing public equity and future EPS is diluted by the new issue, and the market cap should remain similar. Scenario 2: A's share price now has
by gefh 11y ago
Scenario 1: B's existing public equity and future EPS is diluted by the new issue, and the market cap should remain similar.
Scenario 2: A's share price now has a dividend stream implying future returns, which will increase the future value of the shares. Yes, the market cap will drop by $15B on the dividend date, but two similarly performing companies, one paying predictable dividends, and one not, should already be priced differently. I'll concede that the modern practice of just not paying dividends complicates this a bit, and biases the pricing toward pure speculation.
- whack 11y agoScenario 1: B's existing public equity and future EPS is diluted by the new issue, and the market cap should remain similar. This is factually false. Ask anyone with a background in finance and they will tell you so. Scenario 2: A's share price now has a dividend stream implying future returns, which will increase the future value of the shares. If companies A and B start off with the exact same market cap, and generate the exact same profits every year, and A keeps paying off the profits in the form of dividends, and B refuses to do so and hoards the profits in its bank account, B's market cap will keep rising further and further ahead of A's market cap. Again, this is a basic financial fact, and anyone with a background in finance will tell you so.