Skip to main content
Personal Finance & Money

Return to Answer

improved answer a bit
Source Link
Ganesh Sittampalam ♦
Ganesh Sittampalam ♦
  • 30.2k
  • 8
  • 94
  • 119

It's a dilution of the ownership; the public used to own x% of Facebook and now they own less than x% of the bigger Facebook that incorporates Whatsapp (assuming that Whatsapp was completely private before).

In principleLogically, the $15 billion should beis allocated proportionately between the existing stockholders (x% of it for the general public, y% for Mark Zuckerberg, etc), but. However it doesn't really make sense to think of it that way unless Whatsapp is actually worthless. 

What's important are the proportions. Suppose that the newnewly issued shares correspond to 25% of the previous share capital. Then previously the general public owned x% out of 100%, and now they own x% out of 125%, i.e. (0.8x)% of the new share capital.

Whether the actual value of those stocks has been changed depends entirely on the actual value that Whatsapp adds to the old Facebook. As Dheer says, only time will tell on that one.

Apart from the financial consequences, dilution is sometimes considered important because it can mean a change in influence: a significant shareholder would often be able to encourage the company to act in a certain way. With a lower percentage ownership, that influence is diminished.

It's a dilution of the ownership; the public used to own x% of Facebook and now they own less than x% of the bigger Facebook that incorporates Whatsapp (assuming that Whatsapp was completely private before).

In principle the $15 billion should be allocated proportionately between the existing stockholders (x% of it for the general public, y% for Mark Zuckerberg, etc), but it doesn't really make to think of it that way unless Whatsapp is actually worthless. What's important are the proportions. Suppose that the new issued shares correspond to 25% of the previous share capital. Then previously the general public owned x% out of 100%, and now they own x% out of 125%, i.e. (0.8x)% of the new share capital.

Whether the actual value of those stocks has been changed depends entirely on the actual value that Whatsapp adds to the old Facebook. As Dheer says, only time will tell on that one.

It's a dilution of the ownership; the public used to own x% of Facebook and now they own less than x% of the bigger Facebook that incorporates Whatsapp (assuming that Whatsapp was completely private before).

Logically, the $15 billion is allocated proportionately between the existing stockholders (x% of it for the general public, y% for Mark Zuckerberg, etc). However it doesn't really make sense to think of it that way unless Whatsapp is actually worthless. 

What's important are the proportions. Suppose that the newly issued shares correspond to 25% of the previous share capital. Then previously the general public owned x% out of 100%, and now they own x% out of 125%, i.e. (0.8x)% of the new share capital.

Whether the actual value of those stocks has changed depends entirely on the actual value that Whatsapp adds to the old Facebook. As Dheer says, only time will tell on that one.

Apart from the financial consequences, dilution is sometimes considered important because it can mean a change in influence: a significant shareholder would often be able to encourage the company to act in a certain way. With a lower percentage ownership, that influence is diminished.

Source Link
Ganesh Sittampalam ♦
Ganesh Sittampalam ♦
  • 30.2k
  • 8
  • 94
  • 119

It's a dilution of the ownership; the public used to own x% of Facebook and now they own less than x% of the bigger Facebook that incorporates Whatsapp (assuming that Whatsapp was completely private before).

In principle the $15 billion should be allocated proportionately between the existing stockholders (x% of it for the general public, y% for Mark Zuckerberg, etc), but it doesn't really make to think of it that way unless Whatsapp is actually worthless. What's important are the proportions. Suppose that the new issued shares correspond to 25% of the previous share capital. Then previously the general public owned x% out of 100%, and now they own x% out of 125%, i.e. (0.8x)% of the new share capital.

Whether the actual value of those stocks has been changed depends entirely on the actual value that Whatsapp adds to the old Facebook. As Dheer says, only time will tell on that one.