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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: valueminded who wrote (58139)	4/29/1999 4:23:00 PM
From: Tommaso	Respond to of 132070

Other people will argue all day long about this, but to me it's nothing but a distribution of capital. When a company has large amounts of cash and when their own stock has a very low P/E, a buyback makes perfect sense. When the stock price is high and the company borrows money to buy in the stock, it makes no sense at all unless it's a very cynical move by insiders to help them work off their own holdings.

To: valueminded who wrote (58139)	4/29/1999 4:59:00 PM
From: S. maltophilia	Respond to of 132070

We could take this a bit further. What if they bought in 100 million shares (~12% of total) and managed to do it all @ $200? That would leave them with a negative equity and a slightly <G> increased interest expense. How many shares did they retire in 1992-93?

To: valueminded who wrote (58139)	4/29/1999 5:19:00 PM
From: Knighty Tin	Read Replies (2) \| Respond to of 132070

Chris, Nope, you aren't really missing anything. As I said, the co. has to have current eps growth above the rate they pay on interest. But let's use an example, ignoring taxes, as they tend to be a close tradeoff: A co. has scammed 8% eps growth with tax miracles and cutting R&D, etc. and can borrow at 6%. So, if they cut the shares in half by borrowing money to buy back shares, they are earning an extra 8% on the lesser shares and paying out 6% more in the expense column, yielding a net to the eps of 2%. Now they have grown at 10%, not 8%. But, if you have an old tech co. like IBM with positive free cash flow, you do not have to borrow all of it. By cutting the % allocated to R&D, you can buy back shares with the money and get a double boost in the near term. That is a no cost deal short term, but probably huge cost longer term. IBM is using a combo of borrowed money and free cash flow to pump up the eps and the stock price. BTW, you mentioned more detailed reports on IBM. I am using the eps report available here on SI. It is fairly detailed, but you can get it under the news section on the stock.