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Tesco in the UK are about to award a 5% turn around bonus in shares to their staff with the option of keeping them or selling them straight away. It's likely most of the employees will sell them straight away as they were expecting a cash bonus.

The company have said that due to the large numbers of sales that this could affect the value of the shares. My prediction is the mass selling by employees will reduce the share value. You can hold them but Tesco share prices over the last five years have been going down and it doesn't look like they are about to do anything spectacular to drive them up again.

Does anyone know after companies have done this in the past if...

A) The share prices fall as a result of the employees selling? B) Is there a trend for the shares to bounce back up in any significant way afterwards as a result of a influx of people buying while the price is driven down?

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    How many shares does that represent? The stock trades more than £75 million a day on average so unless the shares awarded are of that magnitude or more, I doubt they will have much effect on the share price, even if employee all start selling at the same time. If the awarded bonus is much more than that the answer would be different. – assylias May 3 '16 at 12:22
  • It's hard to say, but a full time staff member will be on 532 shares at the current price but most staff aren't full time. So if we lowball that to 250 as an average, say out of the 476,000 staff only 1/2 qualify for the bonus so that's 238000 that'd be 59,500,000 shares at current price of 169p so that's £100,555,000. If only 3/4 sell them then that's £75,416,250 so if I've done my maths right then that's of a similar magnitude to what you mentioned. – John Standworth May 3 '16 at 12:50
  • Assuming they all decide to sell, and send their order on the same day, then it may have an effect on that day, especially if their orders are all executed at the same time, say in the open. If the sell orders are spread over a few days (probably) it is unlikely to have a noticeable effect. – assylias May 3 '16 at 13:39
  • It seems like it will be spread over a few days in the event of a lot of people wanting to sell. Thanks for your help. – John Standworth May 3 '16 at 13:46
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Like others have already said, it may cause an immediate dip due to a large and sudden move in shares for that particular stock. However, if there is nothing else affecting the company's financials and investors perceive no other risks, it will probably bounce back a bit, but not back to the full value before the shares were issued. Why? Whenever a company issues more stock, the new shares dilute the value of the current shares outstanding, simply because there are now more shares of that stock trading on the market; the Earnings Per Share (EPS) Ratio will drop since the same profit and company value has to be spread across more shares.

Example:

If a company is valued at $100 dollars and they have 25 shares outstanding, then the EPS ratio equates to $4 per share (100/25 = 4).

If the company then issues more shares (stock to employees who sell or keep them), let's say 25 more shares, then shares outstanding increase to 50, but the company's value still remains at $100 dollars. EPS now equates to $2 per share (100/50 = 2).

Now, sometimes when shareholders (especially employees...and especially employees who just received them) suddenly all sell their shares, this causes a micro-panic in the market because investors believe the employees know something bad about the company that they don't. Other common shareholders then want to dump their holdings for fear of impending collapse in the company. This could cause the share price to dip a bit below the new diluted value, but again if no real, immediate risks exist, the price should go back up to the new, diluted value.

Example 2:

If EPS was at $4 before issuing more stock, and then dropped to $2 after issuing new stock, the micro-panic may cause the EPS to drop below $2 and then soon rebound back to $2 or more when investors realize no actual risk exists. After the dilution phase plays out, the EPS could actually even go above the pre-issuing value of $4 because investors may believe that since more stock was issued due to good profits, more profits may ensue.

Hope that helps!

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