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Red Hat, Inc. Message Board

  • sambordulac sambordulac Jul 1, 2003 7:56 PM Flag

    This just in, "RHT is taken private,

    Gradually." A group lead by richard pinola and John Galvin, CEO and COO of Right Management, anounced that they formulated a plan to gradually taking over RHT. By awarding stock options in the range 20% of outstanding shares to the management every so many years, after three such manuevre, the management would end up controlling 50% of the company's outstanding shares. By that time the debt level would subside enough that banks will be very happy to finance the deal. Mr. Pinola also noted that with some luck, the share prices will be depressed as many investors would avoid ownership for fear of further dilution. An inside source told CNN that the whole scheme was inspired by a cpa, though different than his original suggestion, such scheme would be far less costly to the insiders. Most shareholders reacted with a cheer as they finally got a premium for their holdings. To be sure, some held it for a decade without seeing even one dime of dividend.

    Right Management Consultants Inc. is a global provider of career transition and human resource consulting services. The Company offers a full spectrum of services to meet the global workforce management needs of client organizations and their employees. The Company's operations are divided into two lines of business: career transition services and organizational consulting. Right Management has agreements with five independent franchise businesses, each of which the Company refers to as an Affiliate. The Company licenses its Affiliates to use its service marks and licenses and train them to use its proprietary materials and methods. The Company receives fees directly from employers for its services rendered, and receives royalties and fees from its Affiliates.

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    • Son, your hobby horse is on it's way to the glue factory.

    • No problem. Until we hear otherwise from you, we'll leave it that you admit you were wrong, and you withdraw your charge that RHT continues to be too generous in awarding options.

      As you know, I don't disagree that in the past RHT was too generous, but the relatively tiny deductions from reported EPS for the cost of option issuance for the last two years, listed in the SEC documents, shows that you are complaining now about activity that happened several years ago, and has long since been known and discounted.

      Also, please get back to us on how you know that as soon as the stock rises a little bit, every employee will exercise their options and sell the stock, pushing it back down. Given that the options have years to run, why will they do it on the first rally?

      BTW, I am quite open to a bearish argument. If you have good reasons why RHT's earnings will be below expectations going forward, or why the labor market will get so hot that companies will hoard employees rather than lay them off, or any other reason, please let us know. But the particular hobby horse you have been riding has ceased to breathe and is on its way to the glue factory. It has joined the choir invisible. It is an ex hobby horse.

    • 1 answer - The joke's on you. CPA stands for Certified Pain in the Ass.

      1 delay - My hernia still hurts from laughing so hard at your comments about "reasonable options issuance at RHT". I'll get back to you on the 20% dilution and theft from the shareholders. Can't pound out more than a few sentences now. Ohhhh, the pain of a deep laugh from a clueless post.

    • If, in the last year, RHT has issued an excessive number of options, then why is there so little subtracted from EPS for them, compared to most other companies?

      Also, does someone actually pay you to be a CPA, or is that just your initials?

    • I won't be able to respond again for a couple weeks. I have been hospitalized. I had a serious hernia as a result of laughing so hard at your previous post indicating that RHT "has been extremely modest in how many options it has issued".

    • Ooops! I meant to hit reply to your post, and mistakenly clicked on "recommend this post" by mistake. Please subtract one.

      "No mistake my misguided friend. I have never pointed to the meaningless numbers to which you constantly bring up."

      I never once brought them up until my Final Verdict posts last week. They are entirely meaningful. They show that, whatever the total of options outstanding, at least for the last two years RHT has been extremely modest in how many options it has issued. This is reflected in the tiny deduction against earnings for options compared to most other companies. It proves that your whining is really about the company's actions several years ago. That is ancient history to the stock market, and has long since been reflected in the stock price.

      Understand now? Feel free to apologize at any time. If the "cpa" in your name refers to your job rather than your initials, please ask your supervisors to explain this to you.

      "As a result, there is no chance in hell that this stock will ever again get a lift. The second it does, employees are there to exercise, sell, and beat the stock down."

      The typical option stays outstanding for many years. There is ample room for the stock to double, let's say, while employees continue to hold their options, rather than exercise them and sell the stock. If RHT either proves that a stronger economy won't hurt its earnings, or the economy gets weaker, then there will be more than enough demand for the stock, given its present modest valuation, to gobble up any shares that come in from employees.

      Of course, if the company does poorly, then that won't happen, but then the reason for the stock not going up will be the company's bad performance, not your paranoid option fantasies. Either way, you are barking madly up the wrong tree.

    • I did walk, on all but a minor number of shares. I continue to show up here to point out to others why the street also turns its back and walks away from this stock. This company is full of overpaid, over bonused, over optioned, over retirement planned whinners who constantly complain about their undervalued shares ...

      WELL DUH ... issue enough options that you can't look down, up, left, or right without finding a free RHT stock option ... and the street has a tendency of turning their backs on your shares.

      This company has no business being a public company. They need to take it private.

    • Unlike cpa38, who is, I presume, a CPA, I am not a CPA. So I am not as familiar with the fine points of all the various rules, existing and proposed, to value option grants. But I thought I should post the relevant footnote from the latest RHT 10-Q:

      Stock-based Compensation Arrangements
      - -------------------------------------

      At March 31, 2003, the Company has two active stock based compensation plans:
      the 1993 Stock Incentive Plan and the Directors' Stock Option Plan. The Company
      accounts for these plans under the recognition and measurement principles of
      Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
      to Employees" and related interpretations. Under APB No. 25, no compensation
      expense is recognized for stock option grants because the exercise price of the
      Company's stock options equals the market price of the underlying stock on the
      date of the grant. Had compensation cost for these plans been determined in
      accordance with Statement of Financial Accounting Standards ("SFAS") No. 123,
      "Accounting for Stock-Based Compensation", the Company's net income and earnings
      per share ("EPS") for 2003 and 2002 would have been reduced to the following
      pro-forma amounts

      Three Months Ended March 31,
      2003 2002
      ---- ----
      <S> <C> <C>
      Net income - as reported $10,409,000 $9,212,000
      Total stock-based employee compensation
      expense determined under fair value based
      method for all awards, net of tax ($851,000) ($604,000)
      ---------- ----------
      Net income - pro-forma $9,558,000 $8,608,000
      Basic EPS - as reported $0.46 $0.41
      Basic EPS - pro-forma $0.42 $0.38
      Diluted EPS - as reported $0.43 $0.38
      Diluted EPS - pro-forma $0.40 $0.35

      The fair value of the options was estimated at the date of grant using a
      Black-Scholes option pricing model. Grants in 2003 and 2002 were assumed to have
      no dividend yield. The weighted-average assumptions used for grants in 2003 were
      a risk-free interest rate of 3.61%, an expected volatility of 64.7%, and an
      expected option life of 8 years. The weighted-average assumptions used for
      grants in 2002 were a risk-free interest rate of 4.14%, an expected volatility
      of 65.0% and an expected option life of 7 years.

      [See my comments in next post]

      • 1 Reply to Bibbicif
      • [My comment]: If I understand this correctly, had all the options issued had been expensed as employee compensation, then earnings for Q1, instead of being $0.43 as reported, would have been $0.40 per share. Last year's Q1 would have been $0.35 instead of $0.38 as reported.

        Whoopa-whoopa!! Management has been issuing so many options that, had they been expensed, they would have reduced EPS by a giant $0.03 per share in the quarter. And that assumes a high 65% volatility rate for the stock, which increases the value (and negative impact on EPS) of the options.

        Let's look at some other companies: MSFT's latest Q would have been a nickel less than its reported $0.25, meaning it gave out three times as many options as RHT, relatively speaking. CRAI, the consulting company most similar to RHT in market cap, would have reported $0.18 rather than $0.22, also more than twice the impact. Same story with FCN, another consulting company that, like RHT, is considered a play on a bad economy. ACN, the biggest consulting company, likewise gave out about twice as many options as RHT, in terms of their impact on earnings.

        Shall I go on? Here's DELL, which, had it expensed the options it issued, would have reported $0.14 in the Q rather than $0.23 actually reported. YHOO, instead of the $0.08 in EPS it reported, would actually have shown a loss of $0.03 had it expensed the options it issued last quarter. YHOO is just one of numerous companies whose EPS disappear completely if they expensed the options they issue.

        This all looks pretty clear: maybe RHT issued too many options in the past, but they are clearly NOT doing so of late. Those posters here who are obsessed with this issue are either ignorant of the facts, or have some other agenda that they have yet to disclose.

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