Cameron Wright

Broadcom Corp. May Be a 'Perfect Payday' Stock

Phil, while I agree with your conclusion that BRCM is likely a good buy at these levels, I don't agree with this statement:

<i>They didn’t steal money, they stole shares of stock. In fact, the shareholders aren't even any more diluted than they would have been if the options had been priced higher.</i>

They did steal money. By pricing options at $10 instead of $20, they stole $10 for every option exercised. I did a quick calculation, and if you assume all options are undervalued by the same $ amount, which is obviously not a correct assumption but about all you can assume based on the information they've given, then $1.5B in extra expense would mean each option granted from 1998 through 2002 was undervalued by about $8.80. This leads to under pricing from anywhere from just under $10 in 1998 to over $25 in 2000. If every one of these options had been exercised, this would lead to over $2.5B in cash that BRCM should have received that it didn't, which is equal to about $5 per share with 500m shares outstanding. Even if you assume that none of the 2000 options are exercised since they were repriced in 2002, it still comes out of just under $4 per share.

Once they give final details, I'll be able to get a more accurate estimate.