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| From: | mixtrader <mixtrader@clear.net.nz> |
| Date: | Thu, 20 Nov 2003 20:18:58 +1300 |
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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.
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