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Wednesday, May 07, 2003 7:23:55 AM
I can't speak for the others in the minority view on this issue but from this shareholder's perspective predicting how the future share price will be affected by the passing or defeat of this proposal is far from a slam dunk. I am willing to acknowledge that there is a chance, maybe even a good chance, that the stock will go up more in the future if this proposal is defeated rather than passed. However, I am not willing to assign anything close to a zero probability that the future stock price would benefit most by the passage of #2 rather than its defeat. That is where we might have to agree to disagree and let me explain why.
I don't see how these options are going to increase value to the company or not granting options will cost the company, so avoiding dilution will maximize shareholder value.
I assume we can both agree that the future share price will more or less correlate directly with future changes in eps. That is particularly true now that the investing world is back to rewarding the "steak" rather than the "sizzle." We can also both agree on how the denominator in the eps calculation will be affected by whether #2 is passed or goes down to defeat. Where we part company is over the numerator. In order to make your argument for defeat as strong as possible you reject out of hand any chance that these options might motivate management to work harder and smarter to maximize future earnings to the shareholders' benefit. Then to make your case airtight you assert that in the case of defeat management will not take actions to reward themselves in other ways that might be just as "dilutive" to eps and/or that their focus on building shareholder value will be unaffected by what will surely be a significant blow to their morale right at the time when HG says "we have momentum going for us." You also have not factored in the possibility that the institutions that have have driven our share price up just might make a sudden and wholesale exodus if they suspect management's attention is going to be diverted by a shareholder revolt. As far as they are concerned there are plenty of fish in the sea.
It is this overreaching by you and others that caused me to post yesterday. Your exclusive focus on the denominator in the eps equation is very reminiscent to me of managers that insist long term profitability can be achieved by a continual focus on cutting costs rather than building revenues. As Loop has pointed out on several occasions that approach has left this economy and many of the companies that make it up in deep doodoo.
Finally, everyone seems to be quoting Warren Buffet to support their arguments lately, so I might as well take a shot at it. Maria Bartoramo (sp?) asked in her interview of him two days ago what he thought would be expected returns for equity investors. He responded that over the next twenty years 6% or 7% would be a good average annual return and added that "those who think they will average 15% or more are going to be severely disappointed." I think we can both agree that IDCC is likely to return several times 6%/year to its investors for the foreseeable future. I was once told to be careful about trying to polish one of your investment "diamonds" .. you might just chip it in the process.
I tried to be cognizant of your admonishment to not "go on" so much, but this is as good as it gets I'm afraid LOL.
Regards,
Danny
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