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It has been a fundamental tenet of shareholder capitalism for decades that there should be no dilution of equity without the prior approval of the company's existing shareholders.
America's largest single investor, the giant TIAA/CREF, votes against about one in five option plans put to it, usually because it is concerned about excessive dilution of equity.
In a key phrase it tells potential investors "options for the existing joint venture investor at this stage may include – exit, partial exit, introduction of private third-party equity (dilution of equity), debt-funding/refinancing, other structured finance, equity or Debt IPO fundraise [sic]".
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Mr. Khodorkovsky, a former banker who does not look like a corporate oil executive in his trademark leather jacket and jeans, threatened outside shareholders with dilution of their equity during a reorganization in 1998.
The dilution of American International Group equity holders and the bankruptcy of Lehman Brothers will serve as good examples.
This alternative reflects the true economic cost of options, which is the dilution of shareholders' equity, offset by a tax deduction for employees' gains plus the company's use of the cash employees pay to exercise the option.
A partial answer is that doing so is not easy the right price is difficult to determine, the cost is mainly one of dilution of existing shareholders' equity stakes rather than a direct cost to the firm, and the income is hard to evaluate until the options are exercised.
This will inevitably lead to dilution of current shareholders' equity.
But at this stage of success ViaSat won't have to accept heavy dilution of the founders' equity.
But Abraham said today that former chief executive Andy Duncan and ex-chairman Luke Johnson were right to reject a tie-up at that time as some form of equity dilution would have been involved.
They believe that partly because of equity dilution and partly because of signaling.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com