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Author: kiddal One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 18103  
Subject: Re: Some calculations (long) Date: 4/16/2000 12:37 PM
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You own a slightly larger piece of a company with less cash. Those who take the cash have essentially sold 1/3 of their post split shares...

Just what is the point of all of this?


The net effect is no different than a share repurchase. If you take the stock, you have a slightly larger percentage of Ford stock. If you take the cash, a slightly smaller stake.

If you think the stock is undervalued, it is a good use of the money.

A couple of reasons to do it this way are:

1) The whole process will happen on a certain date, not over months or years that a traditional repurchse would take.

2) They do not want to lower the number of shares in the float

The one thing you are missing from your calculation above is earnings per share. Assuming your numbers from above for someone who owns 100 shares:

PRE:
1.57 eps (est) * 100 shares = $157 of earnings on your holdings

POST:
1.16 eps * 150 shares = $174 of earnings on your holdings

Don't assume the market cap will drop by exactly the amount of cash spent on this program. While cash drops, relative EPS increases.

This is essentially what any stock repurchase accomplishes.
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