They need a small sub notebook for Japaness market.
They also need Something like EyeTV that makes watching TV on a mac possible. Places like Japan with high population density will need this function.
Why another store in NY? There are enough cash to bring a store to most country in EU as well as Asia Regiion like Hong Kong and Singapore. Why Ignore those potential customers?
Apple Japan continued to "frustrate" Apple, accounting for just $283 million in revenues, down 8 percent year-over-year. This included the sale of 79,000 Macs, down 4 percent year-over-year.
So bring out a subnotebook already!
An 11-inch (completing the 11, 13, 15, 17 range) would go down really well here and then they could actually compete with the other manufacturers. The Japanese like small. Duh!
If Steve and Co. wants more customers and more money, their number one business priority right now at this point in time should be getting Apple stores to every country in the world outside the US. One country, one store at a time. Pick a country, pick a location, add a store, next counrty do the same, and so on and so fourth. They are being very, very slow in adding Apple stores to Europe, France doesn't even have a store (64 million people), Germany doesn't have a store (82 million people).
We're not really asking for too much here, they really need to seriously address this issue, they are adding stores all over the US all the time. I just think it's really high time Apple started focusing properly on Europe, Austrailia and Asia. Huge markets go uptapped here, and Microsoft is just winning more new customers everyday in these parts where it's diffucult to see real Apple computers in high numbers, in the flesh in stores.
Apple plans to open its first retail store in Munich (Apple Germany's headquarters) in the second half of 2008. Two more stores are to follow, in Berlin and Frankfurt. There will be 5 German stores altogether. The problem with Germany is that Apple has to compete with large Mac resellers like Gravis and, more recently, Saturn, which is the German equivalent of Best Buy for Americans.
How about they start paying a dividend on their shares? ....APL stock just sits there going up in value, but it doesn't DO anything for me. i.e. It keeps gaining potential energy, but it has no kinetic energy.
They could have bought a whole bunch of Mac programs that would move them closer to what they seem to want, and need.
They could have bought Painter, Poser, Bryce, and a number of others at fire sale prices several times in the past few years.
They should have also engaged Adobe in a bidding war for Macromedia.
Flash alone would have been worth it for Apple to acquire. Then they would have controlled that important standard, which would have leveraged Quicktime much further.
But they seem to be afraid of these types of purchases. It's too bad.
If there is one thing Melgross has said...that I agree with? It's this.
Bullseye. I was pulling my hair out that Apple didn't pick these apps up for a song.
Painter, Bryce, Poser...sold for a snip years ago.
And there was Macromedia...for Flash.
Still, maybe they feel in quicktime and with Adobe's continued commitment to the Mac...they have the leverage they need...for now.
Maybe...if iPhone generates the income they desire...they can buy Adobe from pocket change from iPhone?
Adobe's done all the hard work of converting the suite to intel cpus and integration over applications... How much for Adobe? Keep the pc versions on the back foot and the Mac gains marketshare with the superior versions integrated with OS Leopard?
Apple the software house? It's time it to come. And the potential profit is there to be had. Look at the software they make now compared to years ago? Loads. And quality too.
But I'd like to see them grow some stones and take buy out Adobe...aquire key gaming companies like Blizzard...and grow the software label in much the aggressive way M$ has. Not willy nilly? But key targets...eg to boost Mac gaming...Id games would be good. Valve...etc.
If there is one thing Melgross has said...that I agree with? It's this.
Bullseye. I was pulling my hair out that Apple didn't pick these apps up for a song.
Painter, Bryce, Poser...sold for a snip years ago.
And there was Macromedia...for Flash.
Still, maybe they feel in quicktime and with Adobe's continued commitment to the Mac...they have the leverage they need...for now.
Maybe...if iPhone generates the income they desire...they can buy Adobe from pocket change from iPhone?
Adobe's done all the hard work of converting the suite to intel cpus and integration over applications... How much for Adobe? Keep the pc versions on the back foot and the Mac gains marketshare with the superior versions integrated with OS Leopard?
Apple the software house? It's time it to come. And the potential profit is there to be had. Look at the software they make now compared to years ago? Loads. And quality too.
But I'd like to see them grow some stones and take buy out Adobe...aquire key gaming companies like Blizzard...and grow the software label in much the aggressive way M$ has. Not willy nilly? But key targets...eg to boost Mac gaming...Id games would be good. Valve...etc.
Lemon Bon Bon
Adobe might be too expensive now. I've seen estimates of up to $15 billion. They could have gotten MacroMedia for not much more than $4 billion. I think Adobe got it for $3.4 or so.
I hope this wasn't the only thing I said that you've agreed with.
Companies buy back their shares for the ostensible reason to increase shareholder value. The idea is that the shares will go up because of it. It's a fairly complex concept, but the basis of it is that with less shares, the P/E will go down, thus causing the share price to rebound.
But it almost never happens.
There are other reasons to buy shares back, but for other purposes.
Economists think that share buybacks are a bad deal for the shareholders, but potentially good for management if the company is in a situation where a hostile takeover is possible.
Companies buy back their shares for the ostensible reason to increase shareholder value. The idea is that the shares will go up because of it. It's a fairly complex concept, but the basis of it is that with less shares, the P/E will go down, thus causing the share price to rebound.
But it almost never happens.
There are other reasons to buy shares back, but for other purposes.
Economists think that share buybacks are a bad deal for the shareholders, but potentially good for management if the company is in a situation where a hostile takeover is possible.
Sorry, but it is not particularly complex. Also, some of your statements -- such as "....with less shares, the P/E will go down;" or ".....it almost never happens" or "Economists think that share buybacks are a bad deal for the shareholders..." etc etc -- are incorrect. (As an aside, I don't understand how even if the "P/E went down" it will cause the "share price to rebound".) Anyhow....
Here's what you need to know about share repurchases, SR (there's a similar set of arguments for dividends, which I won't bore you with).
1) On average markets react substantially positively to announcement of SR (I would be happy to send you the cites for a substantial finance and economics literature on this).
2) There are five six important reasons for why SR results in a positive market reaction (and your claim that it could be a hedge against possible hostile takeovers is not one of them).
3) Here are the reasons. The most important one for the positive announcement effect is: SR signals confidence in future cash flows prospects. By putting its money where its mouth is, the mgmt is seen as credibly telling the market "I think my shares are worth more because of what I know about the future that you don't." The second reason is, it is a tax efficient way to return money to shareholders (dividends are taxed at current income rates, while SP can be at capital gains rate), without setting the usually irreversible precedence of a dividend. The third reason is, it signals greater managerial discipline, since too much cash left lying around in the company is an invitation to misuse (e.g, such as via value-destroying acquisitions), or over time could signal a lack of good ideas for investing future growth (MSFT is Exhibit A for this). Economists refer to this as minimizing a potential "agency problem." A related fourth reason is, it signals to the market that the company is binding itself to the discipline of capital markets visits in the future by saying, "I will go back to external capital and make the case for my investments to fund future growth if and when the need comes around". The fifth reason is, it is a less ownership-dilutive way to buy back and hold treasury stock for future stock and option grants to employees -- you do not have to issue new shares when options are exercised. The sixth reason is, it gets rid of a "cash drag" on net income since cash and marketable securities earn a pittance, certainly way below the cash flow returns that the company's operating assets are generating.
Bottom line: Share Repurchases are, on average, an EXCELLENT deal for shareholders.
(There are a couple more reasons, but this is a tad long, so I'll stop.)
Sorry, but it is not particularly complex. Also, some of your statements -- such as "....with less shares, the P/E will go down;" or ".....it almost never happens" or "Economists think that share buybacks are a bad deal for the shareholders..." etc etc -- are incorrect. (As an aside, I don't understand how even if the "P/E went down" it will cause the "share price to rebound".) Anyhow....
Here's what you need to know about share repurchases, SR (there's a similar set of arguments for dividends, which I won't bore you with).
1) On average markets react substantially positively to announcement of SR (I would be happy to send you the cites for a substantial finance and economics literature on this).
2) There are five six important reasons for why SR results in a positive market reaction (and your claim that it could be a hedge against possible hostile takeovers is not one of them).
3) Here are the reasons. The most important one for the positive announcement effect is: SR signals confidence in future cash flows prospects. By putting its money where its mouth is, the mgmt is seen as credibly telling the market "I think my shares are worth more because of what I know about the future that you don't." The second reason is, it is a tax efficient way to return money to shareholders (dividends are taxed at current income rates, while SP can be at capital gains rate), without setting the usually irreversible precedence of a dividend. The third reason is, it signals greater managerial discipline, since too much cash left lying around in the company is an invitation to misuse (e.g, such as via value-destroying acquisitions), or over time could signal a lack of good ideas for investing future growth (MSFT is Exhibit A for this). Economists refer to this as minimizing a potential "agency problem." A related fourth reason is, it signals to the market that the company is binding itself to the discipline of capital markets visits in the future by saying, "I will go back to external capital and make the case for my investments to fund future growth if and when the need comes around". The fifth reason is, it is a less ownership-dilutive way to buy back and hold treasury stock for future stock and option grants to employees -- you do not have to issue new shares when options are exercised. The sixth reason is, it gets rid of a "cash drag" on net income since cash and marketable securities earn a pittance, certainly way below the cash flow returns that the company's operating assets are generating.
Bottom line: Share Repurchases are, on average, an EXCELLENT deal for shareholders.
(There are a couple more reasons, but this is a tad long, so I'll stop.)
Sorry, but I disagree.
I don't know where you get your info from, but what I've read, and have been told over the past 40+ years I've been investing contradict your advice.
When a company buys back, and then retires the shares, the P/E goes down. It's simple math.
Much stock purchases by institutions are for "technical" reasons. The company is worth more than the stock indicates, partly due to the lower than normal P/E.
I would love to see that literature, because I've seen very little positive comments on share repurchases. Sometimes there is a small, short-lived bounce, but it rarely lasts. Companies often do a repurchase because the shares are going down. The buyback doesn't help.
The hedge against hostile takeovers is a well known one, so I'm surprised that you don't know it. With the company holding more of their shares, which are controlled by management, management has more leverage.
Often, companies attempting takeovers, if they are thwarted in buying the required number of shares will even ask (demand) that more shares be issued.
When repurchases are aimed at management and employee incentives, they are sound.
But, overall, there are problems.
This link illustrates the non-value of many repurchasing plans, I'll quote a bit as well.
Managers have substantial discretion to time their firm's stock repurchases, which increases diluted EPS. The authors sought to identify if and when firms were repurchasing their own shares to manage diluted EPS, and whether employee stock options played a role in these decisions. The issue is especially pertinent since repurchases are often portrayed as being good for the company. However, the authors argue that repurchases for the purpose of managing diluted EPS should have no real effect on firm value.
The authors find that managers increase the level of their firm's stock repurchases to offset the effects of securities such as employee stock options, which can decrease diluted EPS. Numerous articles in the financial press have suggested that managers repurchase shares to offset EPS dilution in response to employee stock option plans, and executives acknowledge that their decisions to issue and repurchase shares are influenced by potential earnings per share effects.
The authors also find that managers increase their firm's stock repurchases when earnings fall short of the level required to maintain the past growth rate of diluted EPS. This finding suggests that some EPS growth cannot be attributed to improved firm performance, but rather repurchase activity.
The study controls for several other motives often cited for repurchases, including distributing excess cash flow, signaling to offset perceived undervaluation, and re-leveraging the firm.
While stock repurchases may temporarily boost diluted EPS, these actions do not create any value for shareholders.
"Repurchasing your own stock for this purpose is like taking money from your left pocket and moving it to your right pocket," says Wong.
Bens adds, "The cash managers are using to buy back shares could have been put to better use. If there is no upside to repurchases to offset this dilution, and there is a potential downside, why do it?"
this is the typical reaction to most share repurchasing I've read over the years.
Better use of the funds would be for R&D, plant modernization (if indicated), advertising, acquisition of pertinent technology, etc.
Another quote from that article:
Quote:
while they are not opposed to stock repurchasing, Bens and Wong caution that the logic behind these repurchase decisions is not especially sound.
"Investors should be aware of how much managers are repurchasing to manage earnings per share," says Bens. "As a manager, I would be aware that it's a fool's game. You are not really creating value, but a lot of managers behave like they are."
The stock market may seem to reward these repurchase decisions with an increased stock price, but that should not be a reason for buying back stock if it has only a short-term effect. Bens notes that increasing a firm's stock price through repurchases is very different from true value-enhancing strategies such as finding new customers for the firm.
And though the hostile takeovers prevalent in the mid-to late 1980s undoubtedly fueled a substantial fraction of the repurchase activity during that period, the decline in hostile takeovers in the early 1990s did not produce a reversion to the level of repurchase activity that prevailed before the takeover boom.
to avoid unwanted takeover attempts; and, to counter the dilution effects of employee and management stock options
I could go on posting more and more links, but while it may be popular for those who don't analyze this to any great depth to think this is a great idea, those that do are either ambivalent, or negative. At best, it is a neutral resulting policy.
Oh boy. This is what happens when one looks at selective evidence (or relies on what one has been been told or on personal experience) on a HUGELY researched topic.
Let me just say that there are many, many good summaries of the overwhelming amount of research in financial economics on this topic. I will recommend one, since it is written in a simple, clear, and rigorous fashion, and will appeal to a lay person, or a manager, or a financial expert, or even an academic who thinks that (s)he might know a lot about the issue. (It also has a comprehensive set of citations of the relevant literature). I hope you will find it of interest to download and read it if you would like to learn more about it.
It is called "Clear Thinking On Share Repurchases:"
It will take way to long for me to respond to you point-by-point (and would take this forum too far afield from what is of interest) -- but I would be very happy to engage in a conversation privately if you wish!
Oh boy. This is what happens when one looks at selective evidence (or relies on what one has been been told or on personal experience) on a HUGELY researched topic.
Let me just say that there are many, many good summaries of the overwhelming amount of research in financial economics on this topic. I will recommend one, since it is written in a simple, clear, and rigorous fashion, and will appeal to a lay person, or a manager, or a financial expert, or even an academic who thinks that (s)he might know a lot about the issue. (It also has a comprehensive set of citations of the relevant literature). I hope you will find it of interest to download and read it if you would like to learn more about it.
It is called "Clear Thinking On Share Repurchases:"
It will take way to long for me to respond to you point-by-point (and would take this forum too far afield from what is of interest) -- but I would be very happy to engage in a conversation privately if you wish!
Thanks for the link, and I will read it, though I don't think that continuing this much further either publicly, or privately will change either of our opinions. I can gather a good deal of research as well.
The problem with economics is that is is not a science. While it attempts to explain past results, it doesn't do well in predicting the future, so there are different schools of thought. One or the other gains ascendency for a while, before sinking down. This happens on a continual basis, so we surely won't come to any agreed upon conclusions here. But, that's fine.
Apple plans to open its first retail store in Munich (Apple Germany's headquarters) in the second half of 2008. Two more stores are to follow, in Berlin and Frankfurt. There will be 5 German stores altogether.
1 + 2 = 5
I'm confused?
Did you mean to say; two more stores in Berlin and two in Frankfurt, or did you mean something else?
Thanks for the link, and I will read it, though I don't think that continuing this much further either publicly, or privately will change either of our opinions
I agree. But I should add -- I mean this genuinely -- that I think you are a gentleman.
Quote:
Originally Posted by melgross
The problem with economics is that is is not a science. While it attempts to explain past results, it doesn't do well in predicting the future, so there are different schools of thought. One or the other gains ascendency for a while, before sinking down. This happens on a continual basis, so we surely won't come to any agreed upon conclusions here. But, that's fine.
Again, I agree. Economists are good at saying 'what' or 'when,' but never the two at the same time. Also, many of the empirical insights are an "on average" basis, and thus may or may not apply for any number of reasons to an individual data point (such as Apple).
That said, there are, occasionally, some items of empirical evidence that are so robust, and they conform to theoretical models so well, that they become folk wisdom. In financial economics (a field I happen to know reasonably well), there are a handful of such items of evidence. I was merely referring to one of them.
I agree. But I should add -- I mean this genuinely -- that I think you are a gentleman.
Thanks.
Again, I agree. Economists are good at saying 'what' or 'when,' but never the two at the same time. Also, many of the empirical insights are an "on average" basis, and thus may or may not apply for any number of reasons to an individual data point (such as Apple).
That said, there are, occasionally, some items of empirical evidence that are so robust, and they conform to theoretical models so well, that they become folk wisdom. In financial economics (a field I happen to know reasonably well), there are a handful of such items of evidence. I was merely referring to one of them.
Comments
What to do with all of that money?!!??
Buy EMI ($3 billion) Buy Sony ($65 billion)
They also need Something like EyeTV that makes watching TV on a mac possible. Places like Japan with high population density will need this function.
Why another store in NY? There are enough cash to bring a store to most country in EU as well as Asia Regiion like Hong Kong and Singapore. Why Ignore those potential customers?
Apple Japan continued to "frustrate" Apple, accounting for just $283 million in revenues, down 8 percent year-over-year. This included the sale of 79,000 Macs, down 4 percent year-over-year.
So bring out a subnotebook already!
An 11-inch (completing the 11, 13, 15, 17 range) would go down really well here and then they could actually compete with the other manufacturers. The Japanese like small. Duh!
If Steve and Co. wants more customers and more money, their number one business priority right now at this point in time should be getting Apple stores to every country in the world outside the US. One country, one store at a time. Pick a country, pick a location, add a store, next counrty do the same, and so on and so fourth. They are being very, very slow in adding Apple stores to Europe, France doesn't even have a store (64 million people), Germany doesn't have a store (82 million people).
We're not really asking for too much here, they really need to seriously address this issue, they are adding stores all over the US all the time. I just think it's really high time Apple started focusing properly on Europe, Austrailia and Asia. Huge markets go uptapped here, and Microsoft is just winning more new customers everyday in these parts where it's diffucult to see real Apple computers in high numbers, in the flesh in stores.
Apple plans to open its first retail store in Munich (Apple Germany's headquarters) in the second half of 2008. Two more stores are to follow, in Berlin and Frankfurt. There will be 5 German stores altogether. The problem with Germany is that Apple has to compete with large Mac resellers like Gravis and, more recently, Saturn, which is the German equivalent of Best Buy for Americans.
Chrysler? 'Apple takes over ... not only the living room but also the garage ...'
So then the car metaphor would work wouldn't it?
How about they start paying a dividend on their shares? ....APL stock just sits there going up in value, but it doesn't DO anything for me. i.e. It keeps gaining potential energy, but it has no kinetic energy.
- Jasen.
Brilliant!
as they say on fark, quick and dirty...
bottom row, center pair are doors, others are display windows.
first floor sales, second floor genius bar and training, like ginza, regent st, etc.
based on http://www.rkf.com/listings/NEW/401W14St_main.asp seen via tuaw.
Nice won..
There were a lot of things they could have done.
They could have bought a whole bunch of Mac programs that would move them closer to what they seem to want, and need.
They could have bought Painter, Poser, Bryce, and a number of others at fire sale prices several times in the past few years.
They should have also engaged Adobe in a bidding war for Macromedia.
Flash alone would have been worth it for Apple to acquire. Then they would have controlled that important standard, which would have leveraged Quicktime much further.
But they seem to be afraid of these types of purchases. It's too bad.
If there is one thing Melgross has said...that I agree with? It's this.
Bullseye. I was pulling my hair out that Apple didn't pick these apps up for a song.
Painter, Bryce, Poser...sold for a snip years ago.
And there was Macromedia...for Flash.
Still, maybe they feel in quicktime and with Adobe's continued commitment to the Mac...they have the leverage they need...for now.
Maybe...if iPhone generates the income they desire...they can buy Adobe from pocket change from iPhone?
Adobe's done all the hard work of converting the suite to intel cpus and integration over applications... How much for Adobe? Keep the pc versions on the back foot and the Mac gains marketshare with the superior versions integrated with OS Leopard?
Apple the software house? It's time it to come. And the potential profit is there to be had. Look at the software they make now compared to years ago? Loads. And quality too.
But I'd like to see them grow some stones and take buy out Adobe...aquire key gaming companies like Blizzard...and grow the software label in much the aggressive way M$ has. Not willy nilly? But key targets...eg to boost Mac gaming...Id games would be good. Valve...etc.
Lemon Bon Bon
Brilliant!
This has been spoken about for years. Supposedly Apple is now discussing either a share buyback, not something I ever agree with, or a dividend.
We'll see.
If there is one thing Melgross has said...that I agree with? It's this.
Bullseye. I was pulling my hair out that Apple didn't pick these apps up for a song.
Painter, Bryce, Poser...sold for a snip years ago.
And there was Macromedia...for Flash.
Still, maybe they feel in quicktime and with Adobe's continued commitment to the Mac...they have the leverage they need...for now.
Maybe...if iPhone generates the income they desire...they can buy Adobe from pocket change from iPhone?
Adobe's done all the hard work of converting the suite to intel cpus and integration over applications... How much for Adobe? Keep the pc versions on the back foot and the Mac gains marketshare with the superior versions integrated with OS Leopard?
Apple the software house? It's time it to come. And the potential profit is there to be had. Look at the software they make now compared to years ago? Loads. And quality too.
But I'd like to see them grow some stones and take buy out Adobe...aquire key gaming companies like Blizzard...and grow the software label in much the aggressive way M$ has. Not willy nilly? But key targets...eg to boost Mac gaming...Id games would be good. Valve...etc.
Lemon Bon Bon
Adobe might be too expensive now. I've seen estimates of up to $15 billion. They could have gotten MacroMedia for not much more than $4 billion. I think Adobe got it for $3.4 or so.
I hope this wasn't the only thing I said that you've agreed with.
.... a share buyback, not something I ever agree with, or a dividend.
Why not?
Why not?
Companies buy back their shares for the ostensible reason to increase shareholder value. The idea is that the shares will go up because of it. It's a fairly complex concept, but the basis of it is that with less shares, the P/E will go down, thus causing the share price to rebound.
But it almost never happens.
There are other reasons to buy shares back, but for other purposes.
Economists think that share buybacks are a bad deal for the shareholders, but potentially good for management if the company is in a situation where a hostile takeover is possible.
Companies buy back their shares for the ostensible reason to increase shareholder value. The idea is that the shares will go up because of it. It's a fairly complex concept, but the basis of it is that with less shares, the P/E will go down, thus causing the share price to rebound.
But it almost never happens.
There are other reasons to buy shares back, but for other purposes.
Economists think that share buybacks are a bad deal for the shareholders, but potentially good for management if the company is in a situation where a hostile takeover is possible.
Sorry, but it is not particularly complex. Also, some of your statements -- such as "....with less shares, the P/E will go down;" or ".....it almost never happens" or "Economists think that share buybacks are a bad deal for the shareholders..." etc etc -- are incorrect. (As an aside, I don't understand how even if the "P/E went down" it will cause the "share price to rebound".) Anyhow....
Here's what you need to know about share repurchases, SR (there's a similar set of arguments for dividends, which I won't bore you with).
1) On average markets react substantially positively to announcement of SR (I would be happy to send you the cites for a substantial finance and economics literature on this).
2) There are five six important reasons for why SR results in a positive market reaction (and your claim that it could be a hedge against possible hostile takeovers is not one of them).
3) Here are the reasons. The most important one for the positive announcement effect is: SR signals confidence in future cash flows prospects. By putting its money where its mouth is, the mgmt is seen as credibly telling the market "I think my shares are worth more because of what I know about the future that you don't." The second reason is, it is a tax efficient way to return money to shareholders (dividends are taxed at current income rates, while SP can be at capital gains rate), without setting the usually irreversible precedence of a dividend. The third reason is, it signals greater managerial discipline, since too much cash left lying around in the company is an invitation to misuse (e.g, such as via value-destroying acquisitions), or over time could signal a lack of good ideas for investing future growth (MSFT is Exhibit A for this). Economists refer to this as minimizing a potential "agency problem." A related fourth reason is, it signals to the market that the company is binding itself to the discipline of capital markets visits in the future by saying, "I will go back to external capital and make the case for my investments to fund future growth if and when the need comes around". The fifth reason is, it is a less ownership-dilutive way to buy back and hold treasury stock for future stock and option grants to employees -- you do not have to issue new shares when options are exercised. The sixth reason is, it gets rid of a "cash drag" on net income since cash and marketable securities earn a pittance, certainly way below the cash flow returns that the company's operating assets are generating.
Bottom line: Share Repurchases are, on average, an EXCELLENT deal for shareholders.
(There are a couple more reasons, but this is a tad long, so I'll stop.)
Sorry, but it is not particularly complex. Also, some of your statements -- such as "....with less shares, the P/E will go down;" or ".....it almost never happens" or "Economists think that share buybacks are a bad deal for the shareholders..." etc etc -- are incorrect. (As an aside, I don't understand how even if the "P/E went down" it will cause the "share price to rebound".) Anyhow....
Here's what you need to know about share repurchases, SR (there's a similar set of arguments for dividends, which I won't bore you with).
1) On average markets react substantially positively to announcement of SR (I would be happy to send you the cites for a substantial finance and economics literature on this).
2) There are five six important reasons for why SR results in a positive market reaction (and your claim that it could be a hedge against possible hostile takeovers is not one of them).
3) Here are the reasons. The most important one for the positive announcement effect is: SR signals confidence in future cash flows prospects. By putting its money where its mouth is, the mgmt is seen as credibly telling the market "I think my shares are worth more because of what I know about the future that you don't." The second reason is, it is a tax efficient way to return money to shareholders (dividends are taxed at current income rates, while SP can be at capital gains rate), without setting the usually irreversible precedence of a dividend. The third reason is, it signals greater managerial discipline, since too much cash left lying around in the company is an invitation to misuse (e.g, such as via value-destroying acquisitions), or over time could signal a lack of good ideas for investing future growth (MSFT is Exhibit A for this). Economists refer to this as minimizing a potential "agency problem." A related fourth reason is, it signals to the market that the company is binding itself to the discipline of capital markets visits in the future by saying, "I will go back to external capital and make the case for my investments to fund future growth if and when the need comes around". The fifth reason is, it is a less ownership-dilutive way to buy back and hold treasury stock for future stock and option grants to employees -- you do not have to issue new shares when options are exercised. The sixth reason is, it gets rid of a "cash drag" on net income since cash and marketable securities earn a pittance, certainly way below the cash flow returns that the company's operating assets are generating.
Bottom line: Share Repurchases are, on average, an EXCELLENT deal for shareholders.
(There are a couple more reasons, but this is a tad long, so I'll stop.)
Sorry, but I disagree.
I don't know where you get your info from, but what I've read, and have been told over the past 40+ years I've been investing contradict your advice.
When a company buys back, and then retires the shares, the P/E goes down. It's simple math.
Much stock purchases by institutions are for "technical" reasons. The company is worth more than the stock indicates, partly due to the lower than normal P/E.
I would love to see that literature, because I've seen very little positive comments on share repurchases. Sometimes there is a small, short-lived bounce, but it rarely lasts. Companies often do a repurchase because the shares are going down. The buyback doesn't help.
The hedge against hostile takeovers is a well known one, so I'm surprised that you don't know it. With the company holding more of their shares, which are controlled by management, management has more leverage.
Often, companies attempting takeovers, if they are thwarted in buying the required number of shares will even ask (demand) that more shares be issued.
When repurchases are aimed at management and employee incentives, they are sound.
But, overall, there are problems.
This link illustrates the non-value of many repurchasing plans, I'll quote a bit as well.
http://www.chicagogsb.edu/capideas/o...epurchase.html
Managers have substantial discretion to time their firm's stock repurchases, which increases diluted EPS. The authors sought to identify if and when firms were repurchasing their own shares to manage diluted EPS, and whether employee stock options played a role in these decisions. The issue is especially pertinent since repurchases are often portrayed as being good for the company. However, the authors argue that repurchases for the purpose of managing diluted EPS should have no real effect on firm value.
The authors find that managers increase the level of their firm's stock repurchases to offset the effects of securities such as employee stock options, which can decrease diluted EPS. Numerous articles in the financial press have suggested that managers repurchase shares to offset EPS dilution in response to employee stock option plans, and executives acknowledge that their decisions to issue and repurchase shares are influenced by potential earnings per share effects.
The authors also find that managers increase their firm's stock repurchases when earnings fall short of the level required to maintain the past growth rate of diluted EPS. This finding suggests that some EPS growth cannot be attributed to improved firm performance, but rather repurchase activity.
The study controls for several other motives often cited for repurchases, including distributing excess cash flow, signaling to offset perceived undervaluation, and re-leveraging the firm.
While stock repurchases may temporarily boost diluted EPS, these actions do not create any value for shareholders.
"Repurchasing your own stock for this purpose is like taking money from your left pocket and moving it to your right pocket," says Wong.
Bens adds, "The cash managers are using to buy back shares could have been put to better use. If there is no upside to repurchases to offset this dilution, and there is a potential downside, why do it?"
this is the typical reaction to most share repurchasing I've read over the years.
Better use of the funds would be for R&D, plant modernization (if indicated), advertising, acquisition of pertinent technology, etc.
Another quote from that article:
while they are not opposed to stock repurchasing, Bens and Wong caution that the logic behind these repurchase decisions is not especially sound.
"Investors should be aware of how much managers are repurchasing to manage earnings per share," says Bens. "As a manager, I would be aware that it's a fool's game. You are not really creating value, but a lot of managers behave like they are."
The stock market may seem to reward these repurchase decisions with an increased stock price, but that should not be a reason for buying back stock if it has only a short-term effect. Bens notes that increasing a firm's stock price through repurchases is very different from true value-enhancing strategies such as finding new customers for the firm.
Another article:
http://www.nber.org/digest/nov98/w6467.html
A short quote from there:
And though the hostile takeovers prevalent in the mid-to late 1980s undoubtedly fueled a substantial fraction of the repurchase activity during that period, the decline in hostile takeovers in the early 1990s did not produce a reversion to the level of repurchase activity that prevailed before the takeover boom.
Another one:
http://ideas.repec.org/p/sce/scecf4/256.html
And, of course, the quote:
to avoid unwanted takeover attempts; and, to counter the dilution effects of employee and management stock options
I could go on posting more and more links, but while it may be popular for those who don't analyze this to any great depth to think this is a great idea, those that do are either ambivalent, or negative. At best, it is a neutral resulting policy.
Sorry, but I disagree.
...... At best, it is a neutral resulting policy.
Oh boy. This is what happens when one looks at selective evidence (or relies on what one has been been told or on personal experience) on a HUGELY researched topic.
Let me just say that there are many, many good summaries of the overwhelming amount of research in financial economics on this topic. I will recommend one, since it is written in a simple, clear, and rigorous fashion, and will appeal to a lay person, or a manager, or a financial expert, or even an academic who thinks that (s)he might know a lot about the issue. (It also has a comprehensive set of citations of the relevant literature). I hope you will find it of interest to download and read it if you would like to learn more about it.
It is called "Clear Thinking On Share Repurchases:"
http://www.leggmason.com/funds/knowl...egy_011006.pdf
It will take way to long for me to respond to you point-by-point (and would take this forum too far afield from what is of interest) -- but I would be very happy to engage in a conversation privately if you wish!
Oh boy. This is what happens when one looks at selective evidence (or relies on what one has been been told or on personal experience) on a HUGELY researched topic.
Let me just say that there are many, many good summaries of the overwhelming amount of research in financial economics on this topic. I will recommend one, since it is written in a simple, clear, and rigorous fashion, and will appeal to a lay person, or a manager, or a financial expert, or even an academic who thinks that (s)he might know a lot about the issue. (It also has a comprehensive set of citations of the relevant literature). I hope you will find it of interest to download and read it if you would like to learn more about it.
It is called "Clear Thinking On Share Repurchases:"
http://www.leggmason.com/funds/knowl...egy_011006.pdf
It will take way to long for me to respond to you point-by-point (and would take this forum too far afield from what is of interest) -- but I would be very happy to engage in a conversation privately if you wish!
Thanks for the link, and I will read it, though I don't think that continuing this much further either publicly, or privately will change either of our opinions. I can gather a good deal of research as well.
The problem with economics is that is is not a science. While it attempts to explain past results, it doesn't do well in predicting the future, so there are different schools of thought. One or the other gains ascendency for a while, before sinking down. This happens on a continual basis, so we surely won't come to any agreed upon conclusions here. But, that's fine.
Apple plans to open its first retail store in Munich (Apple Germany's headquarters) in the second half of 2008. Two more stores are to follow, in Berlin and Frankfurt. There will be 5 German stores altogether.
1 + 2 = 5
I'm confused?
Did you mean to say; two more stores in Berlin and two in Frankfurt, or did you mean something else?
Thanks for the link, and I will read it, though I don't think that continuing this much further either publicly, or privately will change either of our opinions
I agree. But I should add -- I mean this genuinely -- that I think you are a gentleman.
The problem with economics is that is is not a science. While it attempts to explain past results, it doesn't do well in predicting the future, so there are different schools of thought. One or the other gains ascendency for a while, before sinking down. This happens on a continual basis, so we surely won't come to any agreed upon conclusions here. But, that's fine.
Again, I agree. Economists are good at saying 'what' or 'when,' but never the two at the same time. Also, many of the empirical insights are an "on average" basis, and thus may or may not apply for any number of reasons to an individual data point (such as Apple).
That said, there are, occasionally, some items of empirical evidence that are so robust, and they conform to theoretical models so well, that they become folk wisdom. In financial economics (a field I happen to know reasonably well), there are a handful of such items of evidence. I was merely referring to one of them.
I appreciate the conversation.
I agree. But I should add -- I mean this genuinely -- that I think you are a gentleman.
Thanks.
Again, I agree. Economists are good at saying 'what' or 'when,' but never the two at the same time. Also, many of the empirical insights are an "on average" basis, and thus may or may not apply for any number of reasons to an individual data point (such as Apple).
That said, there are, occasionally, some items of empirical evidence that are so robust, and they conform to theoretical models so well, that they become folk wisdom. In financial economics (a field I happen to know reasonably well), there are a handful of such items of evidence. I was merely referring to one of them.
I appreciate the conversation.[/QUOTE]
Same here.