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French companies benefiting from state aid can't buy back shares

uk.reuters.com

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Re: French companies benefiting from state aid can't buy back shares

#141

Post by fmajid »

bradleyjg wrote: post #57
hnarn wrote: post #48

Earlier quoted context omitted.

Just for the sake of argument, isn't the argument against buybacks that it may skew the indicators for how well the company is doing? You have earnings and then you have amount of shares: buy some shares from the public, and your "earnings per share" goes up even if the earnings haven't changed. In my view, this is radically different from, for example, buying the whole public stock and going private.

If that were so, then the accounting profession has failed at its core responsibility. But I don’t think it has, the information is there for investors to see. If some investors choose to obsessively focus on a single metric, well—-a fool and his money are soon parted.

As long as companies are free to choose their accountants, there is an intrinsic conflict of interest. It gets even worse when the accountancies offer other professional services like IT consulting.

Re: French companies benefiting from state aid can't buy back shares

#142

Post by foob4r »

himinlomax wrote: post #113
btrask wrote: post #40

Why aren't shareholders on the hook for bailing out their own companies? They have the financial incentive to protect their own investments. Why is bailing out a compay different from "investing" in it? What is an investment besides a non-emergency bailout? Edit: Why don't companies raise money by issuing more stock? Isn't that what the stock matket is for?

Because this is NOT a bailout. A bailout implies that those who receive it are potentially at fault, like when someone is bailed out of jail. Banks were bailed out in 2008 because they acted recklessly but had to be saved to limit the damage to the rest of the economy. Here businesses that may otherwise be perfectly sane are temporarily prevented (or limited) by the state from operating for the public good. It's anal…

The specific businesses in scope of this post are these that use free cash flow to enrich shareholders and not plan for rainy days. So yes, they are at fault here for not using their cash wisely and being myopic.

Re: French companies benefiting from state aid can't buy back shares

#143

Post by fmajid »

Havoc wrote: post #73

Could someone explain the sudden anger at share buybacks to me? Media seems to portray it as some sort of evil trick, but I don't see it. It's not that different from distributing divs

They also make executives' stock options more valuable, and in most cases the grants don't have clauses to reprice their options to account for that. In other words, a form of embezzlement.

Re: French companies benefiting from state aid can't buy back shares

#144

Post by AlexandrB »

frockington1 wrote: post #90
sfj wrote: post #20

Earlier quoted context omitted.

Why aren't we letting them fail instead of allowing these idiots to stay in business? Say American Airlines went bust. It's debtors would get its planes and other company assets, who would then in turn sell them to other airlines. A new airline might form to take its place, which would probably be a little more prudent than the last one.

Informing hundreds of thousands of people that a government enforced quarantine took away their job permanently isn't a good way to keep a government. If the government instead helps them stay on pay roll, life goes on

What if the government just pays them instead and lets the company fail?

Re: French companies benefiting from state aid can't buy back shares

#145

Post by sudosysgen »

hnarn wrote: post #46
btrask wrote: post #40

Why aren't shareholders on the hook for bailing out their own companies? They have the financial incentive to protect their own investments. Why is bailing out a compay different from "investing" in it? What is an investment besides a non-emergency bailout? Edit: Why don't companies raise money by issuing more stock? Isn't that what the stock matket is for?

> Why is bailing out a compay different from "investing" in it? What is an investment besides a non-emergency bailout? Bailing a company out is just a euphemism for making a very high risk investment that the market is unwilling to do. Putting aside whether that is the correct thing to do or not, the option would likely (in a recession) be mass unemployment, so there's an incentive from the state, that likely wishes…

Not necessarily. A lot of Bailouts are interest free loans or just outright gifts. I wouldn't oppose them nearly as much if it was the government buying shares at a reasonable price with voting powers, but it's seldom the case.

Re: French companies benefiting from state aid can't buy back shares

#146

Post by adev_ »

sfj wrote: post #54
adev_ wrote: post #41

Earlier quoted context omitted.

> A new airline might form to take its place, which would probably be a little more prudent than the last one. It's a pretty innocent view of the world. Or the new company would just behave exactly like the old one because it is the best short term strategy for shareholders. And anyway, in case of new crisis, their new high executive will sell their share right before (exactly like Jeff Bezos did https://www.theguard…

You think that bailing all these companies out has no effect on how companies run their business going forward? And you claim I have an “innocent view of the world”...

You are speaking about an industry where the margins are so thin that small fluctuations in petrol price or minor geopolitical events are enough to make a dozen companies brankrupt every 2 month.

Also yes, hoping that the coronavirus make them suddenly resilient, it's pretty innocent :)

Re: French companies benefiting from state aid can't buy back shares

#147

Post by bradleyjg »

rorykoehler wrote: post #93
bradleyjg wrote: post #86

Earlier quoted context omitted.

For that reason business managers may want to hold on to cash rather than buying back shares and investors may want to buy shares in companies run by such managers. If we bail out all the grasshoppers then what incentive is there to be an ant?

Absolutely agree but a middle ground is to regulate this kind of behavior out.

I don’t know that we can or should regulate how much cash every single business in the country keeps on hand. Financial institutions that pose systemic risks, sure, but if a cruise company goes out of business because it was mismanaged (i.e. didn’t keep enough cash on hand) is that really something regulation should have prevented?

Re: French companies benefiting from state aid can't buy back shares

#148

Post by bogomipz »

pianom4n wrote: post #25
neximo64 wrote: post #7

Earlier quoted context omitted.

To play devil's advocate here, how is that any different from increasing your dividends?

It's exactly the same as a dividend, except the tax consequences are opt-in for shareholders. Only those who sell their shares are affected, unlike dividends which are equivalent to forcing all shareholders to sell an equal portion. Buybacks are just tax efficient dividends, and all of the hate against them is from people who don't realize this and haven't thought through the math. In the article it says this rule ap…

>"Buybacks are just tax efficient dividends, and all of the hate against them is from people who don't realize this and haven't thought through the math."

No, the issue people have is not with the buybacks themselves but the massive debt binge many companies went on in order to buy these shares back. It's precisely because people have done the math.

Re: French companies benefiting from state aid can't buy back shares

#150

Post by rax0m »

endorphone wrote: post #135
redis_mlc wrote: post #4

Prediction: that won't be a precondition in the USA, and if it was, most companies would decline the aid. You see, buybacks are "that one weird trick" where you can steal from the market, by inflating the EPS and hence your employee stock options, and not go to jail.

There is nothing weird or tricky about buybacks, and the mechanism is pretty obvious and intuitive. A company can issue new shares and raise money when they need it. A company can buyback shares when they have extra money they can't efficiently use (see: AAPL, MSFT, GOOG). There is absolutely nothing nefarious about this mechanism, and if tax treatments vary blame the government (don't hate the playa, etc). Buybacks…

It does become a problem if the company does buy-backs on the premise that they will get bailed out in the future should something unexpected occur. Too-big-to-fail companies can count on themselves getting bailed out which causes them to keep pumping their stock price without worries.
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