Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Microcap & Penny Stocks : IDCN - gold, garnet, etc. -- Ignore unavailable to you. Want to Upgrade?

To: David Sirk who wrote (2577)	9/13/1998 11:20:00 AM
From: Jeff	Read Replies (2) \| Respond to of 5908

Saturday, August 22, 1998 Firms use buybacks to shore up share prices Stock repurchase programs are criticized as short-term props for sagging sto By IAN KARLEFF The Financial Post ÿJittery markets are prompting more companies to tell regulators they plan to buy back some of their stock, but many never follow through on their announcements. ÿMost cite the relative cheapness of their shares and say buying their own stock would provide the best return on their cash. ÿHowever, critics say a buyback filing only serves to prop up the share price temporarily, while counteracting the dilutive effect of options and deterring unsolicited takeovers. ÿThe trend to buybacks has accelerated this year -- 163 companies have applied to the Toronto Stock Exchange, compared with 202 in all 1997. If the pace continues for the rest of the year, the number of filings will be 21% ahead of last year's total. ÿSo far in August, 25 companies have asked the TSE for permission to buy back $1.9-billion worth of shares -- if they took up all the stock permitted. This compares to an average of 20 a month so far this year, and fewer than 17 a month in 1997. A few of the buybacks announced in August CompanyNo. of shares million% change Jan. 1 '98 to announcementClose on announcement dateFriday closeCanadian Pacific Ltd.16.60-11.0$34.35$34.95Geac Computer Corp. Ltd.3.00-28.533.1030.00Hummingbird Comm. Corp.1.00-18.532.1032.00Biovail Corp.1.35-11.748.1050.95BC Gas Inc.2.102.528.6529.40FirstService Corp.0.5972.018.7518.00 ÿThe mere announcement of the intention to buy back stock can pump life into the share price because as the number of shares outstanding shrinks, earnings per share rise. Also, it appears to be a vote of confidence from the company itself. ÿBut two-thirds of firms fail to take up all the shares permitted, said Tom Barnes, a finance professor at Brock University in St. Catharines, Ont. ÿHis uncompleted study of more than 600 Canadian companies announcing share repurchases between 1987 and 1997 shows about 35% buy all they can and 20% buy none. ÿThis raises questions about the TSE's policy statement on normal course issuer bids, which says "a notice is not to be filed if the issuer does not have a present intention to purchase shares." ÿOn Aug. 7, residential and commercial services franchiser FirstService Corp. asked to repurchase up to 5% of its shares. On the day the company made the filing, its stock was up 72% from the beginning of the year. ÿThe announcement is more of an insurance policy Toronto-based FirstService renews annually, said chief financial officer Scott Patterson. ÿHe said the buyback is meant to address the stock's lack of liquidity. If retail investors begin to drive the share price down with small sales, the company could intervene. ÿ"I would be surprised if we needed to be in a position next year to have to buy back shares ... it's been two years since we have purchased any," said Patterson. ÿBefore 1987, buybacks were rare, but by 1995 companies were repurchasing $1 billion of their shares a year. ÿMore than 160 of the firms in the study at Brock University are in the oil and gas exploration sector. ÿAndrew Karolyi, an Ohio State University professor specializing in Canadian market dynamics, said buybacks in this sector could be a defensive strategy "to fend off external interest." ÿCritics of repurchase programs claim they simply serve as a short- term means of halting a stock's downward spiral. ÿ"It works as a temporary fix to stop a selloff from being overdone, but that's all I would give it," said Bill Mackenzie, vice-president at Fairvest Securities Corp. in Toronto. ÿFundamentally, nothing changes within a company when cash is replaced by shares and the effort turns into a zero sum game. ÿHe suggested the need for companies to stem the dilutive effect of option plans as one possible reason for the popularity of buybacks -- as has been the case in the U.S. ÿ"I suspect those savvy investors that have watched stock prices rise dramatically may have been in a position to exercise options in the last few months," said Mackenzie. ÿRepurchasing stock rather than paying dividends is a more lucrative corporate policy for option holders. ÿHe cited U.S figures appearing in a recent Fortune magazine article that show the total value of shares set aside for options in the U.S has grown dramatically to US$600 billion in 1996 from US$59 billion in 1985. ÿThis growth rate outpaces the overall increase in the markets in the same period and the phenomenon is "starting to creep up in Canada." ÿHigh-tech companies rely heavily on option plans to compensate employees. Toronto-based Hummingbird Communications Ltd.'s approved options are equal to 19.1% of its stock. Not all those options have been granted. ÿMicrosoft Corp. is probably the largest user of option plans and consequently a huge repurchaser of its own shares, Mackenzie said. ÿIn the nine quarters ended March 30, 1997, the software giant spent US$5.19 billion buying stock, a touch lower than its aggregate net income of US$5.36 billion for the same period. However, its total number of shares outstanding rose to 1.322 billion from 1.252 billion. ÿ