re: Take Jim Patterson as an example.
Lets look at some of these uses of debt that you point out.
1. Dell uses the proceeds from the Debt offering to buy back stock.
>Good, because the company wants to buy its own stock, Call it corporate margin. It will help EPS going foward to.
>Bad, The company will have to pay intrest therefore increasing expences going forward.
2. Dell uses the money for expansion
>Good, Great, the company expands capacity.
>Bad, If the company uses the money to expand while still buying shares back, then the company is expanding at a higher cost than it could by stop buying shares and use that cash to expand. This would be a more eficient and less costly way of expanding Capacity.
2a. If the company does the debt deal to expand because it nolonger has cash available, that would indicate management made a mistake by buying back too many shares in previous quarters and now must expand in a more costly way.
3. If DELL uses the money to buy another company,
>Good, This is great, But why now cut back on the share repurchace and buy the company in a less expensive way.
>Bad, Dell does not buy companies and this would be a deviation from their sucessful model.
I just think it is unsual for a comapny dooing as well as DELL on all fronts of business to need to do a Debt offering.
Jim |
