Update Jan. 20 – After a week, our unscientific poll on whether share repurchases are a good way to create value shows 40% “It depends,” 35% “No” and 25% “Yes.”
An interesting comment on share repurchases – always a stock-market darling for some institutional investors – is reported today in the In Vivo blog, which covers pharmaceutical and biotech businesses and their capital markets:
During the breakout session after his talk here at the JP Morgan conference Sanofi CEO Chris Viehbacher was asked if Sanofi would consider a buyback. His answer was a resounding “no.” After explaining that his company was “clearly mindful of shareholder value” and citing Sanofi’s dividend as an example of that commitment, he gave his opinion on buybacks.
Companies resort to share repurchases when they’ve “run out of any ideas,” he said. “And the day we run out of ideas, I will retire on that day and let my successor do a share buyback.”
You have to give this CEO credit for his “over my dead body” directness.
My feeling is that repurchases make sense for some companies, in mature or out-of-favor businesses for example, as financial engineering that helps share value.
A firm with growth opportunities crying out for investment – say, new drug R&D projects needing 15-20% of revenues – can argue it has a better idea for using shareholders’ cash. Of course, then management has to deliver on the promise of those investments.
What’s your buyback feedback? Answer the poll, comment, or both.
© 2010 Johnson Strategic Communications Inc.