These 7.5 million shares have nothing to due with Nine or any other deal. This is a new offering for stock based compensation.
That's almost 11 million new shares this company has announced issuing in just two months. Printing shares like this is perfectly rational if the management thinks they are overvalued. Its also perfectly consistent with the recent accelerated insider sales ($60 million worth in the last 9 months).
This will of course increase the share count and thus the denominator in the EPS calculation. But the numerator, the net income has so many "pro forma" adjustments that EPS is almost meaningless as a financial measure for this company. They can almost make up any number they want and the street wont question it.
Although they wont expense the stock options in their pro results (although most tech companies now do), the will take the tax benefit, which is good for operating cash flow. The sell side will enjoy highlighting that (without noting OCF/Share suffers).
The face value of the new shares they will issue for compensation purposes in 2006 is about 8 times the dollar value of the regular cash compensation they are paying this year. That helps them hire more, and thus grow revenue more, and the street looks the other way on the dilution. That works great, until it doesnt - any pull back in the stock demoralizes employees. That hurts operations, which hurts the stock more, and so forth.
This is a great company. But the stock has become a ponzi scheme. And tying employee compensation to a ponzi scheme is bad for the company in the long term.
In the near term somebody very badly wants the stock to close above $55 on Friday (when that 8000 December $55 calls, corresponding to 800,000 shares, they bought in the last week expire). Someone has made a massive and very short term bet, and it wont be hard for someone operating with that kind of leverage to push the shares up another buck or so. I wont be surprised if it drops sharply first thing monday.
This company could grow for years at the recent clip before it catches up to its valuation. All valuations (including MSFT, GOOG) converge with reality at some point.
