Forum Archive Index - November 2003

[mixtrader <mixtrader@clear.net.nz>]

Hi Statkey

 

I see what you are getting at, and as a holder of WRI am aware of the implications.

 

My point really was that these options (which I understand to have been exercised by directors although I haven't yet seen notification of that as yet) would have been approved by the shareholders in the first place (albeit by a majority, which means that the likes of myself really have no say as my shareholding is comparatively insignificant).

 

When options are offered there are two components, the option price and the exercise price.  As part of the remuneration of directors it has become common practice to include options with a specified exercise price (often below the market value of the shares) - in theory this is supposed to act as incentive to the directors to improve the overall performance of the organisation through their governance.  In situations where options are purchased on the open market this provides cashflow to the issuer when options first offered and sold.

 

With regard to the company buying back shares to meet their obligations to the option holders, the money to do that would have to come from shareholders equity.  As such, it becomes a bit like the story of the chicken and the egg.

 

My view is that the share price has not reacted to any great extent on the release of this news (increased a cent today), as such the market does not seem greatly perturbed.  Despite the dilution of each and every holding, the market obviously doesn't agree with your analysis of the loss in equity. Effectively the directors were paid an additional $307K for their services by way of share allotment.  There do exist questions over whether or not this should be shown as an expense to the company (ie tax deductible), it certainly would be if paid as cash bonuses.  The impact of this would be to reduce the apparent profitability of the company and may reduce even further the value put on the shares by the market.

 

I share your concerns over the practice as demonstrated by WRI.  I don't believe that share options are an appropriate method of remuneration for the governors of the company, it promotes short term thinking (of the type that got their former parent - Fletchers - in the poo) as directors become focused on short term gains that will lift share price rather than long-term strategies that will ensure the company's future viability.  That is of course a totally different argument.

 

I acknowledge that the reason the Marathon made the announcement was because of the drop in their holding below the 8% threshold.  Probably the greatest impact of the dilution is that the real profit to be distributed to shareholders in the form of dividends is now spread across a greater number of shares, and the voice per share in the form of votes becomes correspondingly less.

----- Original Message -----

From: terry weston

To: sharechat@sharechat.co.nz

Sent: Thursday, November 20, 2003 5:53 PM

Subject: Re: Re: [sharechat] Dilution of Shares ----- WRI

Hi Mixtrader  I think you miss the point , as a lot of people do . Marathon had to make the announcement through no fault of thiers because <<<<< The holding fell below 8% as a result of the exercise of share options rather than through transactions undertaken by marathon>>>>      [see below]. 

 Somebody  got 400,000 shares @ .57c per share. and everybody else lost 400,000 @ .90c  divided into 138,297,202 shares.  there are now 138,697,202 shares  

everybody took the hit . our equity in the company is diluted  each time these allotments to directors  are made. It would be different if the shares being issued were bought back before being alloted . then the total issued would be the same. That would cost the company money. Who ever got them, would need $280,000 to pay for them and have to sell

190,477shares to pay for them . leaving  them owning an extra  209,523 shares @ $1.47 = $307998.81 .

Do you get the picture now ?      regards  statkey

 

WRI
10/11/2003
ALLOT

REL: 1411 HRS Wrightson Limited

ALLOT: WRI: Allotment of 400,000 Ordinary Shares at $0.57

This is to notify you in accordance with listing rule 7.12.1 of the issue of
securities.

Class of securities - ordinary shares
Number issued - 400,000 @ 57 cents per share
Payment method - cash in full
Percentage of total class - 0.29%
Reason for the issue - exercise of share options
Authority for the issue - shareholder approved option plan
Terms of the issue - rank equally with existing ordinary shares
Total number of securities after issue - 138,697,202
Date of issue - 10 November 2003
End CA:00094459 For:WRI    Type:ALLOT      Time:2003-11-10:14:11:03