Fls, Another great post.
Let's look at what your second to last paragraph says in relation to making a shrew investment in order to become a millionaire. Let's assume Savi earns $10,000,000 and has 1 billion shares out for discussion purposes. That would equate to .01 EPS. If it were to hold a simple 10 PE we would have a share price of .10. If someone owned 1,000,000 shares, their equity would be $100,000.
Now if Savi were to earn that same $10,000,000 after a 100:1 RS, we would still have the same $10,000,000 in earnings but an EPS of $1.00 because their would only be only 10,000,000 million shares outstanding. Once again, with a simply PE of 10, that would place the share price at $10.00. The shareholder that had the original 1,000,000 in shares now only owns 10,000. $10 times 10,000 shares still equals an equity for that shareholder of $100,000. How is the shareholder being negatively effected as to potential equity, or am I missing something with my simplistic example?
A reverse merger is usually the kiss of death for shareholders. You are absolutely correct that a RS is done solely to increase share price in an effort to attract investors or, more importantly, fianacing based on a higher share price.
The obvious answer is that a RS is acceptable for shareholders IF the company can produce. What I was speaking of earlier is that in most cases a company will not survive a RS, and that is only because the company was close to failing already. Under the right circumstances and conditions, a RS for SaviCorp would be very acceptable if the Cornell situation is remedied prior, and, of course, they can bring the Dynos to market soon.
Have a great weekend.
Act in Spite of Fear and Uncertainty
Blockman
