French companies benefiting from state aid can't buy back shares • Hacker News Board

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

#191

Post by unethical_ban » Mon, Mar 30, 2020, 4:13 PM UTC

unlinked_dll wrote: post #188

dumbfoundded wrote: post #173

Earlier quoted context omitted.

Of course, companies will always care about the stock price. And that's a good thing. There should be strong limits on the way to increase that price. Increasing the value of the company? Awesome, go ahead. That's what the bailout is supposed to be for. Buying back stock? No. No value is created.

Buybacks are just dividends but more flexible for the company. It boosts stock price because it tells investors that the share is more than a speculative vehicle. Returning value to shareholders isn't nefarious.

Using almost all of your available cash flow to do stock buybacks is, by my understanding, very much against the long term health of the company, in order to inflate stock figures in a way that disproportionately helps the people making that decision. See the airline industry.

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

#192

Post by Guest42 » Mon, Mar 30, 2020, 4:15 PM UTC

unlinked_dll wrote: post #188

dumbfoundded wrote: post #173

Earlier quoted context omitted.

Of course, companies will always care about the stock price. And that's a good thing. There should be strong limits on the way to increase that price. Increasing the value of the company? Awesome, go ahead. That's what the bailout is supposed to be for. Buying back stock? No. No value is created.

Buybacks are just dividends but more flexible for the company. It boosts stock price because it tells investors that the share is more than a speculative vehicle. Returning value to shareholders isn't nefarious.

It isn't necessarily nefarious but can be. Recent events have shown quite a bit of nefarious activity surrounding this practice which is why there is a call for increased regulation.

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

#193

Post by rv-de » Mon, Mar 30, 2020, 4:18 PM UTC

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?

I think you just figured out that the mantra of free markets being self-organizing is a lie.

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

#194

Post by dumbfoundded » Mon, Mar 30, 2020, 4:26 PM UTC

abakker wrote: post #187

dumbfoundded wrote: post #173

Earlier quoted context omitted.

Of course, companies will always care about the stock price. And that's a good thing. There should be strong limits on the way to increase that price. Increasing the value of the company? Awesome, go ahead. That's what the bailout is supposed to be for. Buying back stock? No. No value is created.

This whole issue is overblown. Employees, retirees, and generic Wall Street investors have a preference for buybacks because it leaves equity holders with the ability to put their capital to good use. I don’t want GE to invest in vanity projects if they don’t have good ideas. Buy back shares, return capital to shareholders, and let shareholders invest in something else. There two sides to a buyback transaction, and s…

What prevents shareholders from just selling their shares? Why does the company have to be the buyer?

A company generating demand for its own stock does not create value, it creates liquidity. I hope you understand the difference.

As for the solution, I think we're on the same page. Government debt should not be used for creating liquidity for shareholders holding a shitty asset.

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

#195

Post by unlinked_dll » Mon, Mar 30, 2020, 4:32 PM UTC

Guest42 wrote: post #192

unlinked_dll wrote: post #188

Earlier quoted context omitted.

Buybacks are just dividends but more flexible for the company. It boosts stock price because it tells investors that the share is more than a speculative vehicle. Returning value to shareholders isn't nefarious.

It isn't necessarily nefarious but can be. Recent events have shown quite a bit of nefarious activity surrounding this practice which is why there is a call for increased regulation.

Any business decision can be nefarious in some context when it's a bad one. At the same time as recent events may call certain buybacks into question, historical events tell a different story.

For example a common argument to ban buybacks is that they were illegal prior to 1982. We also had no good place to park savings before 1982, where at the same time we had seen enormous inflation the stock markets had been on steady decline since the mid 1960s. People weren't just losing money due to inflation, they had fewer options about where to put it reliably.

And when it comes to regulation I don't know what the best way to do it is other than letting companies that made bad buybacks die, or bail them out by diluting shareholders in some kind of bankruptcy proceeding.

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

#196

Post by abakker » Mon, Mar 30, 2020, 4:35 PM UTC

dumbfoundded wrote: post #194

abakker wrote: post #187

Earlier quoted context omitted.

This whole issue is overblown. Employees, retirees, and generic Wall Street investors have a preference for buybacks because it leaves equity holders with the ability to put their capital to good use. I don’t want GE to invest in vanity projects if they don’t have good ideas. Buy back shares, return capital to shareholders, and let shareholders invest in something else. There two sides to a buyback transaction, and s…

What prevents shareholders from just selling their shares? Why does the company have to be the buyer? A company generating demand for its own stock does not create value, it creates liquidity. I hope you understand the difference. As for the solution, I think we're on the same page. Government debt should not be used for creating liquidity for shareholders holding a shitty asset.

Nothing prevents shareholders from selling shares. However, if a company does nothing - e.g. no growth, no buybacks, the future value of their stock will decline continually. through buybacks, they can hold those share prices steady, at least. This gives shareholders liquidity as you suggest - shareholders selling without buybacks means that they will push the price down.

There's a line of thinking which says either a) buy all your equity and go private when the innovation runs out, or b) issue bigger and bigger dividends from FCF and then eventually go out with a bang. IMO, those are strategies that should be specific to a business model. E.g. a gas pipeline may love to pay out dividends since the business model is quite steady. A big electronics manufacturer might want to buy back its shares in the hope that it can eventually go private to restructure.

my point is, the mechanic of a buyback is not inherently evil, and does provide value. I agree that the government should not be creating that liquidity. Though, in reality I don't have a specific problem with letting the government issue convertible debt if companies want a long-term counterparty. the irony is that buybacks are often seen as short-termist, but bailouts should have a long-term lens.

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

#197

Post by wcarron » Mon, Mar 30, 2020, 4:47 PM UTC

abakker wrote: post #187

dumbfoundded wrote: post #173

Earlier quoted context omitted.

Of course, companies will always care about the stock price. And that's a good thing. There should be strong limits on the way to increase that price. Increasing the value of the company? Awesome, go ahead. That's what the bailout is supposed to be for. Buying back stock? No. No value is created.

This whole issue is overblown. Employees, retirees, and generic Wall Street investors have a preference for buybacks because it leaves equity holders with the ability to put their capital to good use. I don’t want GE to invest in vanity projects if they don’t have good ideas. Buy back shares, return capital to shareholders, and let shareholders invest in something else. There two sides to a buyback transaction, and s…

> Buy back shares, return capital to shareholders, and let shareholders invest in something else.

Or GE could invest in increasing wages, particularly for the lowest-paid workers. Return capital to the actual producers of the capital.

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

#198

Post by toast0 » Mon, Mar 30, 2020, 5:14 PM UTC

celticninja wrote: post #84

hnarn wrote: post #46

Earlier quoted context omitted.

> 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…

the bailout should work like a further share issue but with preferential terms, so if you are bailed out to the tune of $1m and your share price is $15 then the government gets 100k shares at $10 each for their $1m.

Most corporate charters would require a shareholder vote to authorize a new class of shares. Some may require a vote of each individual class of shares, including non-voting shares in addition to an overall vote. That takes a lot of time to arrange. A loan contract just needs whatever approval (probably CEO and chief council, maybe the board)

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

#199

Post by celticninja » Mon, Mar 30, 2020, 6:01 PM UTC

toast0 wrote: post #198

celticninja wrote: post #84

Earlier quoted context omitted.

the bailout should work like a further share issue but with preferential terms, so if you are bailed out to the tune of $1m and your share price is $15 then the government gets 100k shares at $10 each for their $1m.

Most corporate charters would require a shareholder vote to authorize a new class of shares. Some may require a vote of each individual class of shares, including non-voting shares in addition to an overall vote. That takes a lot of time to arrange. A loan contract just needs whatever approval (probably CEO and chief council, maybe the board)

that's great and all for the companies but perhaps it should be great for the government and ultimately the tax payer. the alternative is your company goes under and your share price is $0. I'm certain that any vote could be expedited if the the alternative is bankruptcy.

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

#200

Post by abakker » Mon, Mar 30, 2020, 6:29 PM UTC

wcarron wrote: post #197

abakker wrote: post #187

Earlier quoted context omitted.

This whole issue is overblown. Employees, retirees, and generic Wall Street investors have a preference for buybacks because it leaves equity holders with the ability to put their capital to good use. I don’t want GE to invest in vanity projects if they don’t have good ideas. Buy back shares, return capital to shareholders, and let shareholders invest in something else. There two sides to a buyback transaction, and s…

> Buy back shares, return capital to shareholders, and let shareholders invest in something else. Or GE could invest in increasing wages, particularly for the lowest-paid workers. Return capital to the actual producers of the capital.

This is important, especially for those workers who do not qualify for a 401k.

There is an interesting problem where if workers get a 401k or IRA, then buybacks probably help them by driving asset appreciation in a tax free investment vehicle. BUT, if you don't get that, then appreciating equities doesn't do you any good.

In general, the answer is probably a moderate amount of all proposals. Increasing wages is certainly something that companies should be doing.

Finally, some portions of buybacks are used for equity awards to employees, so it is possible that buybacks might end up as tax-privileged payments to workers, albeit not to the ones who are most dependent on wages.