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

#201

Post by dumbfoundded » Mon, Mar 30, 2020, 6:58 PM UTC

abakker wrote: post #196

dumbfoundded wrote: post #194

Earlier quoted context omitted.

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…

The value of the stock going down is the correct behavior if shareholders want to liquidate their holdings. For whatever reason.

Dividends seem also like the correct way to distribute profits back to shareholders. Buybacks on the other hand, I agree, are extremely shortsighted. If not used to go private and restructure the company, buybacks are a tool to provide liquidity to the more well-informed shareholders at the expense of other shareholders. Any sort of public debt financing of buybacks should be completely off the table.

Convertible debt seems like a good structure. If companies want to take the chance on the debt and they fail, the company would be effectively nationalized. In any case, a condition of any such note should be to prevent dividends and buy-backs. Any reasonable investor would probably include such terms.

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

#202

Post by salawat » Mon, Mar 30, 2020, 7:17 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…

Or classify buybacks as a prosecutable form of market manipulation like they were before the rule changes in the 80's that enabled this flavor of unnecessary financial engineering.

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

#203

Post by abakker » Mon, Mar 30, 2020, 7:20 PM UTC

dumbfoundded wrote: post #201

abakker wrote: post #196

Earlier quoted context omitted.

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…

The value of the stock going down is the correct behavior if shareholders want to liquidate their holdings. For whatever reason. Dividends seem also like the correct way to distribute profits back to shareholders. Buybacks on the other hand, I agree, are extremely shortsighted. If not used to go private and restructure the company, buybacks are a tool to provide liquidity to the more well-informed shareholders at the…

Agree with you!

And yet, if people want to liquidate it does drive the price down, but, the market is about price discovery and valuation - the company may have different beliefs about its value and different preferences, hence buybacks.

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

#204

Post by eneveu » Mon, Mar 30, 2020, 7:52 PM UTC

paol wrote: post #6

Some opinions on stock buybacks worth reading: https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for... https://www.nytimes.com/2018/08/23/opinion/ban-stock-buyback...

You could also read those articles for another viewpoint:

https://mebfaber.com/2019/08/05/faqs-on-share-buybacks-for-l...

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

#205

Post by a_c_s » Mon, Mar 30, 2020, 8:24 PM UTC

ComputerGuru wrote: post #104

tialaramex wrote: post #97

Earlier quoted context omitted.

In a year's time, weirdly there isn't 24 million cash profit to pay off the "cheap loan" and the company go bankrupt. In hindsight it's obvious the "profit" was illusionary. Your million dollar "performance" pay for orchestrating this is securely in your personal bank account, the auditor's million dollar "consultancy fee" in theirs, and employees, the tax man, and shareholders are left with nothing. Yet another "suc…

Yes... except the risk of this happening is theoretically priced into the interest rate on the loan. If it’s dirt-cheap it must also be a low-probability scenario. (Not that I necessarily disagree with you on principle.)

That's the theory, but that assumes all stakeholders aligned incentives (or it ignores employees as stakeholders). In the real world it is far easier to fire lots of employees than it is to stop paying the bank loan. So being only sort-of wrong by giving a company a loan they can't quite afford to pay back doesn't hurt the bank at all - they still get their money.

The entity "pricing" the consequences has few consequences if they get it wrong, so why wouldn't they err on the side of doing more business and making more money?

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

#206

Post by cutemonster » Mon, Mar 30, 2020, 8:41 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.

That'd permanently increase the expenses and reduce the dividends and stock value?

(So maybe therefore the CEOs won't increase the wages unless people start resigning?)

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

#207

Post by AlexandrB » Mon, Mar 30, 2020, 8:48 PM UTC

Leherenn wrote: post #172

AlexandrB wrote: post #144

Earlier quoted context omitted.

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

It's probably much more expensive. The difference is between a loan which will likely be paid back versus paying the salaries of thousands of people for who knows how long. Also, good luck taking a plane in the few months following the crisis. Creating back airlines from the ground up is far from instant, even if you have the planes and crews just laying around.

The salaries will end up back in the economy, low paid workers are unlikely to hoard their bailouts because they need food/shelter/etc. It’s also likely that airlines in chapter 11 would be acquired/restructured as a unit, not necessarily sold for parts.

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

#208

Post by sfj » Mon, Mar 30, 2020, 9:48 PM UTC

adev_ wrote: post #146

sfj wrote: post #54

Earlier quoted context omitted.

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 :)

I wasn't talking about a specific industry. And even if I was, a dozen passenger airlines go broke every two months? I'd like to request a citation on that one.

And I wrote more prudent, not “suddenly resilient”. Why don't you argue against what I actually wrote, rather then a straw man you made up?

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

#209

Post by closeparen » Mon, Mar 30, 2020, 9:52 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.

Paying above market is not an "investment," and redistribution is not GE's job. Just collect taxes on those profits and let the government cut whatever checks it feels need to be cut.

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

#210

Post by thekyle » Mon, Mar 30, 2020, 9:57 PM UTC

rorykoehler wrote: post #176

bradleyjg wrote: post #147

Earlier quoted context omitted.

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?

The argument made elsewhere on this thread was that if the cruise liner employs thousands of people then yes it makes sense to have some sort of rules in place to stop them over-leveraging (or similar) to the point where their failure has knock on effects to the greater community/society. Another argument is that we cannot guarantee letting them fail will happen due to political influence etc so it is better to put i…

But if a cruise line fails surely it won't be long before someone buys their assets (maybe a better managed competitor or new entrant) and they will still need to employ people to run those ships.