Toapplythefullydilutedapproachtoestimatetheper-share
value, we value two companies with significant option
overhangs—Cisco and Google. In the following table we
summarize the equity values estimated for the companies
using conventional discountedcash flow models, and then
adjust for value per share using fully diluted shares.
12
Cisco Google
Value of equity (in $ millions)$65,622.00$32,187.00
Primary shares (in millions) 6,487.00 277.78
Options outstanding 1,436.00 25.61
Fully diluted shares 7,923.00 303.39
Value per share (primary) $10.12 $115.87
Value per share (fully diluted)$8.28 $106.09The value per share using the fully diluted approach is
significantlylowerthanthevaluepershareusingtheprimary
sharesoutstanding.Theformervalue,however,ignoresboth
theproceedsfromtheexerciseoftheoptionsaswellasthe
timevalueinherentintheoptions.AtCisco,forexample,a
significant numberof the options issued in past years are
out-of-the-money and may never be exercised.
A modified version of this approach counts only
in-the-moneyoptions whencomputing dilutedshares. With
thisapproach,weestimatethefollowingvaluespersharefor
Cisco and Google:
Cisco Google
Value of equity (in $ millions) $65,622.00$32,187.00
Value of equity (in $ millions) $65,622.00$32,187.00