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Re: VA Linux's Spamming
I wrote
>> Of course it benefits the company since it will give them about $50
>> million cash to support their highly unprofitable operation.
>
Donnie Barnes wrote:
> Do you not pay attention on purpose, or can you not help it?
>
> You missed my point entirely. They'll sell those shares regardless
> of whether or not anyone in the community is able to buy them.
> They will raise that $50M with or without you.
>
If people knew what they were buying they likely would no raise $50M
> Why? Well, they wouldn't have an underwriter if they weren't
> *sure* that there was demand for their stock at the going out
> price *and* demand enough to drive the price up at least some
> past that.
>
Underwriters are sometimes wrong. Often the majority of the "experts"
on stocks are wrong.
> What I said was that -making this offer to the community- does
> not help the company. Making this offering to the public certainly
> does help them, but there was no reason they *had* to make it to
> the community as well.
Well, I read some more of the long prospectus and realize that the IPO
is partly a scheme to make multi-millionaires out of the insiders who
currently own VA stock or options to buy it at very low cost. Here's
a simplified example (but the actual mechanisms are different and more
complex). Say you buy 700 shares of stock at the IPO price. But you
are required to give 600 of these shares to insiders and you only get
to keep 100 shares for yourself even though you've paid for 700. It's
called dilution and of course doesn't work exactly this way but it
amounts to about the same thing.
After the offering at $12/share (+-) each share will represent about
$1.50 of company assets due to dilution. It should represent about
$12 of assets if it were not for dilution. A while ago Omega Research
(a software Co.) had a public offering which was in many ways
something like this with a lot of dilution. It shortly went down from
$12/sh to $3/sh. Valinux could do the same (and is likely eventually
to flop). So it will probably hurt the public. Anyone who buys the
IPO is IMO a fool but there may be a greater fool around to pay more
for it. Eventually, the stock is likely to plummet and the "public"
will be hurt, including retirees whose pension plans may own the
stock.
David Lawyer
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