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No. The market is saying one thing. You believe another. So you bet against the market and the end result is... no change that affects shareholders? If that w

by tacos 12y ago

No. The market is saying one thing. You believe another. So you bet against the market and the end result is... no change that affects shareholders? If that were true, why would a corporation do this?

pedrocr 12y ago
> The market is saying one thing. You believe another. So you bet against the market and the end result is... no change that affects shareholders? At the moment of the transaction there's no change, you've just swapped money for stock and could swap it back the moment after and be back to square one. If you are right and the market is wrong you'll make money on the transaction in the long run. It's just like buying stock for your own account. The moment you buy your net worth doesn't change you've just changed your asset mix between stocks and cash and could change it back with a sell order. Only by the stock changing value over time do you gain or lose net worth. PS: Starting your comments with "No." doesn't really add much to the discussion.
- tacos 12y ago
  At the moment of the transaction there is a very specific change -- the number of shares changes! You keep ignoring this for some reason while you talk about meaningless balance sheet offsets. While it does not affect the line item "shareholder's equity" it very much does affect individual shareholders. It is not a magic wash covered by some "perfect market" force and shareholders will very much complain about dilution. This was OP's question and you've repeatedly talked in circles around it.
  - ghshephard 12y ago
    The number of shares have no impact, if, simultaneously, you do a cash transaction for fair market value. Think of the simple case - a company with $100 cash, and 100 shares, with a value of $1/share. You buy 75 shares for $75. You now have 25 shares outstanding, and $25 cash. Still, $1/share. Alternatively, you can issue 100 shares @ $1/each. You now have $200 cash, and 200 shares outstanding. Share Buybacks/Share Issues (not including tax consequences), are neutral transactions.
    - tacos 12y ago
      You're mixing cash on hand and equity and still ignoring dilution. I don't know where this term "neutral transaction" came from but it's not true on the balance sheet in the dividend case and it's not true in the market in the new issue or buyback case due to externalities. Consider: Shady Patents, Inc has 10 shares outstanding. Current price is $1/share. I own one share. They issue 90 more shares at $1/share. Yes, duh, shareholder's equity remains constant. Shareholder DILUTION however is substantial. If they collect $1 million on a patent and issue a special dividend, I'm getting $1,000 instead of $100,000. YES, there's an equal credit and debit on the balance sheet. NO, this does not mean the market will prop up the price. OF COURSE issuing shares is going to create downward share price pressure. If it didn't, companies would just issue shares indefinitely. And yes, to back up what poor OP said six hours ago, shareholders often resist dilution.
      - pedrocr 12y ago
        > Yes, duh, shareholder's equity remains constant. Shareholder DILUTION however is substantial. If they collect $1 million on a patent and issue a special dividend, I'm getting $1,000 instead of $100,000. Clearly that payout was not priced into the original share price a the time of the capital raise so the new shareholders indeed got a great benefit at the expense of the old ones. At the moment of the transaction though the company went from being valued at 10$ to being valued at 100$ and for that to happen 90$ in cash was added to the company. The company could have turned around and used the same 90$ to buy back the same shares, which is why the transaction itself is neutral to shareholders. As the share price changes over time that may turn out to be a good or a bad idea.
        tacos 12y ago
        At the moment of the transaction the books said the company had $90 more. But this does not matter much because shares were issued. In your imagined impossibly-simple company where market cap always equals cash on hand you can ignore this. In the real world, where the Earnings Per Share suddenly dropped by a factor of 100, perhaps you can imagine what will happen to the share price.

by tacos 12y ago

pedrocr 12y ago

> The market is saying one thing. You believe another. So you bet against the market and the end result is... no change that affects shareholders? At the moment of the transaction there's no change, you've just swapped money for stock and could swap it back the moment after and be back to square one. If you are right and the market is wrong you'll make money on the transaction in the long run. It's just like buying stock for your own account. The moment you buy your net worth doesn't change you've just changed your asset mix between stocks and cash and could change it back with a sell order. Only by the stock changing value over time do you gain or lose net worth. PS: Starting your comments with "No." doesn't really add much to the discussion.

tacos 12y ago
At the moment of the transaction there is a very specific change -- the number of shares changes! You keep ignoring this for some reason while you talk about meaningless balance sheet offsets. While it does not affect the line item "shareholder's equity" it very much does affect individual shareholders. It is not a magic wash covered by some "perfect market" force and shareholders will very much complain about dilution. This was OP's question and you've repeatedly talked in circles around it.
- ghshephard 12y ago
  The number of shares have no impact, if, simultaneously, you do a cash transaction for fair market value. Think of the simple case - a company with $100 cash, and 100 shares, with a value of $1/share. You buy 75 shares for $75. You now have 25 shares outstanding, and $25 cash. Still, $1/share. Alternatively, you can issue 100 shares @ $1/each. You now have $200 cash, and 200 shares outstanding. Share Buybacks/Share Issues (not including tax consequences), are neutral transactions.
  - tacos 12y ago
    You're mixing cash on hand and equity and still ignoring dilution. I don't know where this term "neutral transaction" came from but it's not true on the balance sheet in the dividend case and it's not true in the market in the new issue or buyback case due to externalities. Consider: Shady Patents, Inc has 10 shares outstanding. Current price is $1/share. I own one share. They issue 90 more shares at $1/share. Yes, duh, shareholder's equity remains constant. Shareholder DILUTION however is substantial. If they collect $1 million on a patent and issue a special dividend, I'm getting $1,000 instead of $100,000. YES, there's an equal credit and debit on the balance sheet. NO, this does not mean the market will prop up the price. OF COURSE issuing shares is going to create downward share price pressure. If it didn't, companies would just issue shares indefinitely. And yes, to back up what poor OP said six hours ago, shareholders often resist dilution.
    - pedrocr 12y ago
      > Yes, duh, shareholder's equity remains constant. Shareholder DILUTION however is substantial. If they collect $1 million on a patent and issue a special dividend, I'm getting $1,000 instead of $100,000. Clearly that payout was not priced into the original share price a the time of the capital raise so the new shareholders indeed got a great benefit at the expense of the old ones. At the moment of the transaction though the company went from being valued at 10$ to being valued at 100$ and for that to happen 90$ in cash was added to the company. The company could have turned around and used the same 90$ to buy back the same shares, which is why the transaction itself is neutral to shareholders. As the share price changes over time that may turn out to be a good or a bad idea.
      - tacos 12y ago
        At the moment of the transaction the books said the company had $90 more. But this does not matter much because shares were issued. In your imagined impossibly-simple company where market cap always equals cash on hand you can ignore this. In the real world, where the Earnings Per Share suddenly dropped by a factor of 100, perhaps you can imagine what will happen to the share price.