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Watson Wyatt, HR Consultants, found in a research study (link below)
that the industry with the highest stock option "overhang" in 1999 was
Technology, with an average overhang of 23%. The industry with the
lowest overhand in 1999 was Energy with an average overhang of 9%.
Overhang is probably defined as shares outstanding as used in fully
diluted earnings per share, divided by shares outstanding as used in
earnings per share before dilution.
I read elsewhere that Watson Wyatt found overhang as high as 80% in
certain speculative technology companies. Watson Wyatt also found in
their research report that stock volatility increases for companies
with excessive overhang. From Watson Wyatt's research report (at
this link)
http://www.watsonwyatt.com/homepage/us/res/overhang2000/exec_sum.htm
"Stock options appear to have motivated top managers to undertake
riskier business strategies, including more debt, lower dividends and
higher stock repurchases. These riskier strategies have yielded higher
levels of stock price volatility, which are not in the best interests
of general shareholders."
However calling in existing stock options and reissuing a smaller
number of stock options at current market prices could reduce the
overhang and, because there are less stock options outstanding, I
would think perhaps improve fully diluted earnings per share. That
is the companies you mentioned may be partially reacting to
technicalities in the way fully diluted earning per share are
calculated.
> -----Original Message-----
> From: Ira Tunik [mailto:irat@xxxxxxxxx]
> Sent: Tuesday, April 03, 2001 5:19 PM
> To: realtraders
> Subject: [RT] New ploy
>
>
> Well! Companies are finding a way to please some
> disgruntled employees.
> They are using what is called "synthetic repricing". What actually
> happens is that the company cancels the current stock
> options that were
> issued at higher exercise price and guaranties to re issue the stock
> options in 6 months at a lower price. This will impact all current
> stock holders if this occurs. It is my understanding from
> the article
> that I read, that if the companies stock were repriced
> before then that
> it could be written off as an expense to the company. Both
> Ariba and I2
> have done this already. It is my understanding that
> Inktomi, commerce
> One and Vitria are considering doing the same. Some companies can
> suffer dilution of up to 24%. What a better time then now to do all
> these little shenanigans? Have a good evening. Ira.
>
>
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