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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: TCBinAugusta who wrote (83811)	12/5/1998 10:06:00 AM
From: Voltaire	Read Replies (2) \| Respond to of 176387

Stock BUY BACKS are a SHAM - When a company gives its insiders more in options and less in salary (a popular maneuver these days), it boosts the stock price, indirectly. By reducing salaries, the company also reduces expenses, which adds to earnings. Higher earnings convince investors to pay higher prices for the stock. THE PROBLEM arises when the recipients of options decide to convert their options into actual shares. This puts more shares into circulation, which lowers earnings per share and makes the stock less attractive. When enough bigwigs sell their shares to reap their rewards, the stock price will fall, undermining the aforementioned buyback. Dellheads will wish the company had sent them a dividend instead of spending the money on internal maneuvering. Wake-up Glee Club! From the porch Voltaire

To: TCBinAugusta who wrote (83811)	12/5/1998 12:17:00 PM
From: Chuzzlewit	Respond to of 176387

TCB, I agree with your first point, but take issue with the second (unless you are referring only to the tax deferred and converted effect of buybacks). The fallacy you make is in focusing on eps. If you consider the company as a unit (assuming a single share for the moment) you can see that releasing money in the form of dividends (again ignoring taxes) will have a dollar for dollar offset on the wealth of the company vs. the wealth of the shareholder. Thus, if the company dividends $100 MM to the shareholder the net effect will be zero. The capitalized value of the company ought to drop by $100 MM and the wealth of the shareholder ought to remain the same because he gets $100 MM in cash. It really is no different with 1.4 billion shares outstanding. There should be no change in shareholder wealth. Here is perhaps a better example. Suppose you are talking about a savings account yielding 5% per annum, and you deposit $10,000. You could withdraw $500 per year (read that as eps of $500), or you could leave the cash in to accumulate. The latter case is strictly analogous to a share buyback. But I am sure you would agree that you are no better off by letting his cash accumulate than by withdrawing $500 pa. The present value is $10,000 in either case. TTFN, CTC

To: TCBinAugusta who wrote (83811)	12/5/1998 12:45:00 PM
From: Geoff Nunn	Read Replies (1) \| Respond to of 176387

TCB, the argument that there is some sort of equivalency between a stock buy back program and paying dividends goes right over my head! Maybe I'm in a minority on this issue, but my dictionary defines a dividend as a sum or quantity, usually money, to be divided among shareholders. In a stock buy back program there is no such division of money going to general shareholders. The money only goes to the handful of shareholders who sell. Therefore, I can't accept the analogy you're making. I would also have to disagree that a buy back program necessarily raises EPS. While it's true a stock buy back reduces the shares outstanding, it also reduces the firm's total earnings. Why? Because the cash that is spent to repurchase shares has an opportunity cost. That cash could have been invested to earn interest. Spending the cash to repurchase shares means foregoing interest income that would have boosted overall earnings. Bottom line: there is no free lunch in a stock buy back. After the dust clears, the number of shares is fewer but total earnings is also lower. EPS may rise or fall, depending on how the rate of interest compares to the firm's e/p ratio (reciprocal of the p/e ratio). If e/p < r, then EPS will fall as a result of the buy back. If e/p > r, then EPS will rise. In Dell's case a stock repurchase probably has the effect of reducing EPS - for a while at least. I would grant you, however, that in the long run Dell's EPS can be expected to grow faster as a result of the buy back, since cash is a drag on the firm's future earnings growth. Geoff