I was just looking at stocks yesterday in gurufocus and was digging a little into ADT, since it was sitting close to it's 52 week low. This company was spun off from Tyco and buying back a lot of shares. Interesting enough, there was also a huge short position (15% of the float). Today, they had their earnings and the stock dropped more than 15% after a miserable report. Here is Greenberg's fairly well written piece on it:
thestreet.com
Now, ADT is close to their leverage limit of 3x EBITDA (currently 2.6x), so i think they can't buy much more shares anymore. So it seems like following the activist's investors lead cost the company a lot of financial flexibility and their LT shareholders a lot of money.
Something to keep in mind when watching Icahn's suggestion for financial engineering with respect to Apple. I think a lot of companies would be better if to establish valuation based rules, when buybacks make sense, like Warren Buffet did with Berkshire. Short of that, buybacks are often a waste of money. How often do CEO say - we return X$ to shareholders this year (through buybacks), but they don't state how much the share count was reduced. This is like measuring the effort, but not the result. I truly believe that quite a few if them don't care, they probably have an incentive to return X$ of cash to shareholders in their bonus depends on hitting this target, not if the money is well spent. |
