It is not free money, simply a transferance from one party to another. Someone still has to buy shares dilution or otherwise.
I don't follow that logic. The company borrows money (CD, Wrap Loan, etc) and gives shares to another party that gives the company money. The A/S was diluted. Most often, the receiver of the shares gets the shares at a discount to the market and when registered, are sold into the public. (The float)
There is virtually not cost to the company for the shares that are given in exchange for dollars.
You are correct that if the company borrows money, signs a promissory note with optional conversion and/or warrants clause, then it would appear that the company gets the money for free as they only need to issue shares (paper) for cash and increase float. However, the issuance of those shares need to be sold by the lender at some time to recoup the loan funds in the retail market and may bear some restrictions (which if they do, are not considered a part of the retail float at that time).
My point is that when those shares are redeemed to recoup loan funds, that somebody will have to be willing to pay the price. That someone will have to see fair value in what they are paying for and what they are receiving. If dilution simply occurs through this process of supposed free money, then shareholder value and s/p will be decreased and there will no longer be a market for those shares which the lender holds at the price they received for it.
Therefore, one could say the company received 'free money' but the reality is that someone will have to pay for those shares eventually, thus the 'transferance'.
In addition, when a company decieves, and the s/p drops to reflect cost of that loan and dilution, what happens to all of JZ/s and insider shares? That is why insider holdings are viewed as strong hands, interest in enhancing shareholder value and s/p is in everyone's interest (retail shareholders included). They (insiders) hold several billion shares, more than they can dilute from A/S into float. Why would they do it at .0001? Then R/S following? Insiders stand to lose more than us at this point because they have less than 3 bil available to dilute. They also have more to gain if s/p increases. What do you think makes most sense?
GLTU too. All IMHO.
D
