[quote=threadkiller]Yes what I was interested in finding out is the ratio between shares outstanding and shares issued. Would it not be true that when BofA issues $400 million in shares it would dilute the existing shares. They don’t even pay a dividend so in effect that would be bad for the share holder. Now it might help their books look better which might help their execs get bonuses, the same execs that wanted to charge a fee and are no doubt looking into other ways to milk money. Anyway I digress because I believe that mergers and acquisitions are on the horizon and I think that a company with less outstanding stock might be a take over target.[/quote]
Simple answer, no, it would not necessarily be true that when BofA issues $400 million in shares it would substantially dilute the value of existing shares. I don’t know what their current status is with regards to shares issued and outstanding, but let’s assume for a moment that they need to raise $400 million. and that they have sufficient treasury stock to sell. For each $ that they sell, their net worth goes up by a $, the only difference would be their cost to sell the shares. If it’s treasury stock, that cost is very low. If they need to sell new shares, involving a public offering, that cost is higher.
That said, stock offerings subsequent to initial public offerings are much less expensive than IPO’s. Gross value should still go up something close to cash raised. Value per share should only minimally be affected. So the only difference between selling treasury shares, and a new public offering of stock is the transaction cost.
All of this, however, ignores market perception. Typically (and there are exceptions to this), the need to raise capital has an adverse affect on share value. And that would be irrespective of whether capital is raised through the sale of treasury stock or issuance of new stock. The best time for a company to sell stock is when they don’t need to.
