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| ▲ | dcrazy 6 hours ago | parent | next [-] | | Yes, even if the company raises $10b, the ownership stake and voting power of a share is reduced by 2.5%. And if that $10b figure is a fixed target, then if the share price continues to fall, the more shares they will need to issue, resulting in even more dilution. | |
| ▲ | loeg 4 hours ago | parent | prev | next [-] | | They own a smaller portion of outstanding shares, but the shares they own are worth more. Their value doesn't decrease. | | |
| ▲ | donkers 4 hours ago | parent | next [-] | | They're not worth more. The number of shares is increased by the amount that was issued. So that larger amount of equity is split among more shares. A simple example: Current equity of $100B, 100 shares outstanding. Each share is worth $1B, with 1% of voting power. Then we issue $10B of equity via 10 shares. Now we have equity of $110B, with 110 shares outstanding. Each share is still worth $1B, except each share now has 1/110 of voting power, instead of 1/100. Each share now only controls 0.91% of the company. Their ownership has been diluted. edit: You can throw this comment thread URL into your favorite clanker (Claude, Gemini, whatever) and it will confirm exactly what I'm saying. | |
| ▲ | quickthrowman 3 hours ago | parent | prev [-] | | Issuing new shares is dilutive. — Stock buyback example: There are 10 shares of ABC Corp, it has a market cap of $100. Each share is worth $10. ABC corp buys back one share and destroys it, leaving 9 shares. $100/9 shares=$11.11 per share. — Dilution example: There are 10 shares of ABC Corp, it has a market cap of $100. Each share is worth $10. ABC corp needs $10 so they sell one additional share which the board has authorized. There are now 11 shares. $100/11 shares=$9.09 per share. | | |
| ▲ | donkers 3 hours ago | parent [-] | | Mechanically, from a corporate finance perspective, the price per share doesn't change. Equity decreases or increases by the amount of the buyback or issuance. So in your example, a buyback of 1 share means equity becomes $90, and each share is still worth $10. Likewise for dilution, equity goes up to $110, share still remains at $10. The dilution refers to the ownership of the company, not the stock price. However, in markets, a buyback is a positive signal (with increased EPS also) that can increase the share price. |
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| ▲ | nextaccountic 4 hours ago | parent | prev [-] | | Wait, how is this legal? How are current shareholders made whole? | | |
| ▲ | dcrazy 13 minutes ago | parent | next [-] | | This is one of the ways that owning equity in a company is not the same as owning a portion of the company. | |
| ▲ | donkers 4 hours ago | parent | prev | next [-] | | The board can authorize issuing new shares up to the limit defined by the corporate charter (giving them the ability to raise capital as in this case). Issuing more shares beyond that or beyond the limits defined by the exchange rules go up to a shareholder vote. Shareholders can also sue to block things if there's shady stuff going on. Current shareholders aren't "made whole" there are just more shares and they now own less of the company. | |
| ▲ | PeterisP 2 hours ago | parent | prev | next [-] | | The newly issued shares get sold by the company and the company gets that money for their investment/operations/whatever purposes. So the new shareholders pay "into the pie" and the pie gets bigger, and the effect is that the old shareholders have a slightly smaller share of a slightly larger pie which, if the new shares were sold exactly at the market price, theoretically should have the exact same value - and in practice, assuming the decision to raise capital and invest is useful, usually results in a larger value. | |
| ▲ | loeg 4 hours ago | parent | prev [-] | | Their shares are worth more as a result. Oracle's corporate charter has some provision for the number of shares they're allowed to issue and existing shareholders bought their shares knowing that. Increasing the authorized share limit requires shareholder vote. |
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