I'm of two minds about the stock buyback idea. My gut feeling is that
if the growth-by-acquisition model is viable, then use the money to
grow. As a co-worker says, buybacks shrink the company. Moreover,
cash purchases are clean. Acquisitions for stock raise the
possibility that operators selling to the company will use their
continued presence in the broadly funded company to provide themselves
an income security pillow.
The open-endedness of the timing is also a little odd. If the sense
of the buyback is that the shares are undervalued, that's a situation
that will correct itself in the relatively short term. If the
under-valuation is due to short-term political issues in S.C., then
the opportunity (if indeed it is that) has a very short fuse. The
shares should have already been bought back. (Not that I'm saying
this would have been wise, but it would seem to make as much sense
to buy the operations of other panicked S.C. operators.)
There may be an impulse in the company to say, we sold those
shares for $5 five months ago, and now we can buy them for $3.50.
That's $1.50 free and clear. I disagree. The opportunity to raise
that capital took a long time to mature and cannot be replicated in
the short term.
Given that this part of me doesn't like the buyback idea, the "over
the next several years" phrase softens the sting.
On the other hand, if management has legitimate and sound reasons to
believe the price will increase rapidly in the coming months, then a
buyback may make sense. (My crystal ball was seriously flawed.
Maybe theirs is of higher quality.) Having the authorization gives
them a tool to use for dealing with market volatility. And it
suggests the company is willing to stand behind a bottom price, which
offers some degree of solace to folks who have already lost too much.
Still, I think cash is king.
Larry |
