Senators Chuck Schumer and Bernie Sanders issued rumors about the repurchase of shares and promised to introduce a bill that would "prohibit a company from buying back its own shares unless it invested in workers and investors. communities. " first…"
The general consensus on the Senators' proposal is that even though, certainly, stock repurchases have sometimes been misguided, it is a bad policy to impose limitations because it would be: be ready for the word of the next election presidential, socialist. (It was also noted that, even though the op-ed is consistent with Bernie Sanders' positions, it is a departure for New York Senator Schumer, usually a Wall Street friend, who may be looking to play its left-wing role in the current political context.)
I'm not going to wonder if, in my opinion, limit stock redemptions is a conspiracy left, except to say that whenever the government asks the government to take measures to protect the general public – belts security, food security, the right to vote – A thunderclap from some political circles is to call it socialist.
I would like to point out, however, that many buybacks by major companies have been spectacular failures.
"The balance sheet of most repurchases is not favorable. Generally, after a buyout, the stock price will fall, "said Charles Elson, a professor of finance and director of the John L. Weinberg Corporate Governance Center at the University of Delaware. "Leaders have a bias towards buybacks because it increases the value of their options …"
Brian Sozzi of Yahoo Finance explains how uninspiring Apple's buyback program has been.
But there are other examples even more blatant.
A jagged American sack of money exposed in the exhibition "The Fed at 100" at the Museum of American Finance on December 17, 2013 in New York. (STAN HONDA / AFP / Getty Images)
So here is the stock redemption room of shame.
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The former entertainment giant has squandered its future by buying back shares and not investing in the company. His Paramount movie studio is the shadow of himself and his television networks like MTV and Nickelodeon are run down.
According to Reuters: "Between October 2012 and March 2015, Viacom spent approximately $ 9.7 billion on redemptions, at an average cost of $ 73.58 per share, based on documents filed by the Company, approximately 55 % more than the current price of the action. [on February 10, 2016]. "
The Viacom (VIA) stock has fallen more than 65% over the past five years (even allowing for a nice pop last month), compared with a 40% gain for its rival Disney and 47% for the S & P 500. The stock is currently trading at $ 29. At some point, Viacom may enrich valuable investors, but they have been saying it for years.
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The misfortunes of this ancient icon of American management know-how are now legendary. The company's buyback programs are a major aspect.
In summary, GE (GE) has repurchased more than $ 40 billion of its shares over the last decade (approximately 15% of its market capitalization) at prices between $ 10 and $ 30. (At least half of the purchases were made in the top half of this range.) Today, shares are trading at $ 9.
"Over the past decade, there has been a strong correlation between the high cost of GE's shares and the current cash flow and the amount of stock the company buys," write David Trainer and Sam McBride in New Constructs. "By ineffectively using valuable capital to buy back stocks at inflated prices, the company has destroyed value for its shareholders in the long run."
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The auto giant needed billions of dollars in bailouts from the government when it filed for bankruptcy in 2009. But not long ago, it had billions of dollars of cash. Guess where much of the money went? Between 1986 and 2002, GM (GM) spent more than $ 20 billion on stock repurchases.
Bloomberg notes that if GM had just set aside these $ 20 billion, "it would have been $ 35 billion in 2009 to avoid bankruptcy and react to global competition." GM's stock price at the time? Shares peaked in April 2000 at $ 93. It traded at $ 40 in 2007. Two years later, the shares were delisted, essentially worthless.
The story continues
Eddie Lampert has tried just about every known form of financial alchemy to save the world's largest store, and buyouts have of course been included. Sears (SHLD) has spent billions to buy back its shares, you guessed it, at the wrong time.
As Chris Isidore of CNN asked: "Would $ 6 billion in cash have prevented Sears from going bankrupt? It certainly would not hurt. Sears implemented the program in 2005. In 2007, the stock rose to more than $ 120, but virtually disappeared from last year when the company filed for bankruptcy.
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Big Blue has spent about $ 80 billion on stock repurchases over the past decade. Since 2014, the stock is down 27%, while the S & P 500 index is up 47%. Legendary investor Stan Druckenmiller exposed the problem at CNBC's Delivering Alpha conference in 2014:
"I would say IBM (IBM) is the child of the poster. They literally faced a threat not very different from that of Kodak and Xerox. [confronted], in terms of new technology looking them right in the eye. Instead of increasing investments to fight the threat, they actually borrowed a lot of money to buy back shares. "
For investors, beware of major buyback programs. "… The initial response is generally positive, get a small price increase. Then people start thinking more about what's going on here, how a company realizes its economic performance rather than a managed number, "says Paul Griffin, a professor at the University of Toronto. California, Davis Graduate School of Management.
Question to leave you with: If you think that Chuck Schumer and Bernie Sanders are bad guys or socialists who have proposed laws that would limit this type of buyout, how do you call the executives who implemented the programs?
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