Are there public companies where projected buybacks would result in the company being taken private, after N years?
Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
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Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#12Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…
Also, companies that borrow money to finance stock purchases (eg Apple) also save on their taxes because interest expense on debt is tax deductible.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#13Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…
> a company which executes a share buyback will have no change in its stock price... this is also exactly equivalent to distributing profits in the form of a dividend
This is false (conditionally). Most valuations look something like: earnings x growth + cash. If you have cash that you cannot reinvest at the same ROI that you have been growing at, you can increase shareholder value by removing the cash element, since it's dead weight. A buy back is a way to invest that cash at the same ROI that your company is growing at. A dividend would require the investors to re-invest that cash and get the same ROI that the company is growing at.
This is why it make sense for large, fast growing companies to buy back their shares and for large, slow-growing companies to issue dividends.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#14Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…
I don't think this is accurate. When a company buys back shares, the shares are retired increasing the ownership percentage of the remaining shareholders.
It is basically the opposite of issuing shares and diluting existing shareholders.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#15Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…
Also, companies that borrow money to finance stock purchases (eg Apple) also save on their taxes because interest expense on debt is tax deductible.
Expensing interest only saves you the total interest x interest rate. So they just get a 35% discount on their interest rate.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#16For everyone wondering why the large cash balances on company books, this is why. But it also means that if companies are spending their 'rainy day' money that it's truly raining. The theory that the tech cycle is hitting its 8-year downturn cycle just got more substantiated.
> For everyone wondering why the large cash balances on company books, this is why.
You have that backwards. Companies are generating vast amounts of cash and don't see investments that they want to make (hiring and expanding into new products, acquisitions, etc), which leads to the large cash piles. Some investors then pressure the company to return part of this cash to shareholders (see Carl Icahn / Apple for a recent and high profile example), and that can be done directly via dividends, somewhat indirectly via buybacks, or both. Companies do not spend 'rainy day' money on buybacks - companies in need of additional funds sell more shares or take on more debt, not use cash to buy shares.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#17Are there public companies where projected buybacks would result in the company being taken private, after N years?
I've wondered this myself. Companies going back private in general. Curious how often that sort of thing happens and what benefits there are. Also, thought it might happen to Apple when I saw what profits they were making.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#18Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…
There's another issue created when companies issue debt in order to fund share repurchases. It may seem to make financial sense rates are so low but it's created a huge amount of additional leverage throughout the corporate world.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#19Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…
> a company which executes a share buyback will have no change in its stock price... this is also exactly equivalent to distributing profits in the form of a dividend This is false (conditionally). Most valuations look something like: earnings x growth + cash. If you have cash that you cannot reinvest at the same ROI that you have been growing at, you can increase shareholder value by removing the cash element, since…
Finance theory disagrees with you.
A dividend lets the investors choose if they want to buy more shares (from the same sellers who would sell in a buyback) or mix their current shares with the cash.
Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)
#20Apple buys back a large amount of stock because that is the only way they can really get any return out of their stock ( http://247wallst.com/technology-3/2016/03/01/why-apple-may-s... ). Unfortunately due to the law of large numbers, for them to grow at even a 15-20%, would require billions and billions of dollars in revenue increases. Seems like the most prudent course of action for them and their investors. Albeit…
"Albeit you could also argue that using that cash to buy other companies might be worthwhile."
BOOM! Especially HW and SW I.P. companies given Apple's market and legal strategy. Yet, it's the road not taken.