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You quietly changed from talking about stock price to talking about enterprise value, a term which is defined to exclude cash. This is extremely disingenuous.
by dpark 10y ago
You quietly changed from talking about stock price to talking about enterprise value, a term which is defined to exclude cash. This is extremely disingenuous.
If you want to argue that there is no value in taking over a company for its cash, sure. If you want to argue that the market sees no value in cash, no.
- ghshephard 10y agoI think we can all agree, that when an dividend is issued, particularly one that is significant compared to the "Valuation" of the company, that the stock price (excluding normal day-day market and stock volatility) will drop an amount very close to the amount of the dividend. So, for example, let us say that we have a nice monopolistic utility with (for the sake of argument), very little competition. For example, the Electricity and Water Utility in Dubai, UAE. Let us say that the population has stabilized, and that it has $10 Billion in cash, has a nice stable cost structure with no major depreciations in the future, and are generating $10 million in FCF and profit every year, on assets that are worth $1B, and that the risk free interest rate is 1%. If I were an investor, I would pay $11 Billion for this company. The Cash is worth $10B, and the Business is worth $1B (1% of $1B is $10 million). Now, let us say the business issues a special Dividend of $10B. Can we all agree that a rational investor, on the ex-date, would now only spend $1B on this company, instead of $11B?