| Set a buyback, see your share price spike. It's as familiar as a Seinfeld rerun. Because, over time, a lower share count means a higher stock price. Everybody knows that. What a grand way for cash-rich companies to reward shareholders! Buybacks, one might say, have been in heavy syndication for some years now: the total value of shares repurchased exceeded $100 billion for consecutive quarters for the first time in the last calendar period of 2005 and the first of 2006. And it's accelerated ever since. In total, over the 18 months ended June 30, 2007, S&P 500 companies spent more than $700 buying back their own stock. (Many, of course, have done so in response to campaigns by activist shareholders.) But is the applause really warranted? Are buybacks really the market equivalent of Seinfeld, or more like Emily's Reasons Why Not? We've been poring over the data, and reached some interesting conclusions. 1. Over the 18 months ended June 18, 2007, fully 75% of S&P 500 companies announcing buybacks would have generated a better return by putting their money into a S&P 500 ETF.
2. Over the same period, more than one-third of the S&P companies announcing buybacks paid a premium for the shares -- resulting in a paper loss for investors. We'll be following this going forward, but it's our contention shareholders need to question buybacks instead of automatically queuing the applause track. **Please note that the report available for purchase on this page is the Executive Summary.
To purchase the full report, please contact James Costello at 617-530-8233 or james_costello@sandp.com. |
