Ron, thank you for your comments.
I suppose one can always interpret any event as pivotal, or an overreaction.
I understand your position. However, I also think it misses the point.
1) I do not doubt that buying back shares at 52 would have made no difference, and made no sense. And I would not have advocated such an action.
2) I have no doubt that you could have used the capital to build long term shareholder value through other means than a share buyback (expansion, acquisitions etc.).
3) I do not deny that the company has the right to cancel a share buyback program, and I do not deny that even if you have a share buyback program the company is not actually ever obliged to buy a single share.
These are the issues as I understand them:
1) The value of the buyback program is psychological. Knowing that it is there, would in my opinion, limit the more extreme decline momentum. I explored this in more detail in other posts, so I won't repeat it here, I'll just point out that the issue was never that they should have been buying absurdly at 52. However, neither should they have been giving a signal that it's open season on the longs.
2) The way the whole issue of the buyback program was handled, displayed, at the very least, incompetence on the part of management. There are at least 3 ways in which I think this was badly handled. Timing – why was this program canceled when NITE shares were under tremendous pressure? Why wasn't the program canceled during a time when any possible collateral damage would have been limited? Suggestion: announce the cancellation, during a time of strong upward momentum, f.ex. together with the split announcement. There was no downside to that – because even if that somewhat blunted the subsequent run-up (which I doubt), that actually could have been good, in that it would have limited the extreme run-up (and prevented some folks from buying in excessively high) – limiting the volatility is actually good, for it makes for *sustainable* gains (MSFT is a great example of a company that “manages” expectations and subsequent volatility – NITE should take some lessons from them in protecting shareholder value). Further, a cancellation would have been announced at a higher price level – that was a more logical place than 52, obviously a price of 80 needs even less defending than 52, so why wait until later? Another benefit to canceling back then, would have been the avoidance of the unhappy correlation between subsequent insider sales and a sneak cancellation. In short, canceling at the time of the split announcement would have accomplished everything they wanted (free up capital etc.), and had no downside – it was a far superior time frame.
3) I do not accept that management didn't know until July 21, that they may have better uses for the capital – this is a no-brainer, any young expanding company needs capital, they knew that, I assume, before July 21. It is clear to me, that the timing of the canceling was very damaging, and completely unnecessary, as they could have just as well canceled at the time of the split announcement, and it would have made a lot more sense back then. That, my friend, is BAD MANAGEMENT of shareholder value – by timing the cancellation so badly, they gained nothing, but did damage.
4) Second, having decided to cancel, they should have made a full press release announcing that fact. The fact that this was not announced, left the retail investor without a vital piece of information that directly impacts shareholder value – the fact that a program that was designed to buy back shares was canceled.
5) Why was this not announced? We've been around the block a few times, and both of us know, that information like this leaks out to the “well-placed” – often larger institutions that then can take advantage of it. The last one to find out, is the small shareholder. Do you think that had there been a press release, the small shareholder would have kept buying in, while FBCO unloaded (or shorted)? Why not level the playing field? Why this middle of the night behavior?
That again, to me is BAD management.
And as to the whole reason for canceling – IMO, once they missed the obvious time to cancel, they should have stuck it out – they didn't have to make the decision at the worst possible time, in fact, a truly forward looking management, understands that there are occasions where it pays not to be penny wise and pound foolish. Instead of buying that extra piece of machinery, it may make sense, to shore up investor confidence. Because wise management understands, that over the long term, investors who have confidence in management, confidence that management is extremely concerned about shareholder value, will be more stable investors, and the stock will tend to be less volatile – the MSFT way. It actually makes good BUSINESS sense - because with higher and more stable shares, you can use them to make acquisitions, issue debt and generally capitalize on the good shareprice – this is something that will pay off far better in the long term, than the quick buck approach of “the shareholder comes last, here we can use the capital to buy this nifty widget”. The ironic thing, is that you still could have bought that widget without canceling the program. There are other ways to access capital without hitting the shareholder when he/she is down. Unnecessary, callous, and SHORTSIGHTED. Not the highest caliber of management.
But regardless – EVEN IF, they had excellent reasons why they didn't want to find capital in some other way, then at least certainly they could have canceled at a more logical and better time. And having missed all of that, at least they could have announced it, instead of hanging the shareholder out to dry.
These are quite clearly management missteps. I am not in the mind of KP or anyone else, so I can only speculate on the motives. But the options are not pretty: either incompetence, or lack of concern, or the desire to fetch a higher price for their own shares which they could only sell during a certain time-frame.
Under such circumstances I cannot be a long-term investor in this company. Not because the company is not going to do well. I'm sure they will. Rather, that I don't believe they have the kind of concern for shareholder value and the kind of far sighted priorities, that management of companies I invest in for the long term, have. When I decide to stick it out for the long term, I can't be thinking to myself that at any moment they can pull a fast one in the middle of the night and not tell us. I cannot have even a fleeting suspicion that they are incompetent/callous/ or venal. Yet, I am quite convinced that the *best* case scenario here is: appalling incompetence in timing this cancellation, and more incompetence in not announcing it. Confidence in management must extend to their skills as preservers of shareholder value, not just nominal business execution – there are companies that have good profits, but poor price share, because management is not seen as concerned with shareholder value, or skillful in building it.
These are all obviously just my opinions, and everyone can come to their own conclusions. I simply wanted to give the grounds for my personal opinion.
Regards,
Morgan |
