Found on their website (LINK) the plan was announced today. Does anyone have any insight as to whether this is an attempt to increase value of the remaining shares or to ‘nip in the bud’ a shareholder takeover (or something similar) issue?
Share buybacks seem to have replaced dividend payments as a way of rewarding shareholders and improving their return on investement (at least on paper). Most takeover bids are publicized pretty well in advance and there are a lot of other ways of combatting them.
Share buybacks do not create a taxable event, except to the selling stockholder. Dividends, on the other hand, are taxable to most stockholders. In terms of getting the most benefit to the stockholders, at least in theory a buyback should work better.
Holding all else constant, share buybacks will increase Earnings per Share and Return on Equity, due to decreasing number of shares, and decreasing book equity. It is also an indicator that the company does not see enough “good” projects in the business to invest in.
Mac
I’m no expert, but I believe this is simply a move to get money out to shareholders in this form - taxable usually at lower capital gains rates - instead of as a usually higher-tax rate dividend, there evidently being nothing else better that the CN management can find to do with the money. [%-)] I have a few hundred CN shares, and I’ve neither seen nor heard anything in the nature of a takeover or outside acquisition, unlike when The Children’s Fund acquired a big stake in CSX.
If you look at CN’s latest quarterly earnings release / financial statement for the 2nd Quarter of 2010 ending June 30, 2010 [20 pages, approx. 511 KB in size] - including the notes, esp. the Share repurchase program paragraph under Note 3. on page 6, at -
http://www.cn.ca/documents/Investor-Financial-Quarterly-2010/Q2-2010-Financial-Statements-en.pdf
a couple of things stand out in this regard, as follows:
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A total of 15 million shares were authorized for repurchase, and a considerable amount of that has already occurred, so this is just the latest installment;
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There are around 470 million shares outstanding or possible (‘‘dilution’’) per the bottom of page 1, so the 15 million&nbs
You also need to consider how many shares go from Treasury stock out to employees as part of their incentive programs. So the net change is more important than the buyback.
Is that addressed / included by the ‘dilution’ calculation ?
And yes - I can see that buying back 15 million shares might not be important at all if at the same time a similar or greater quantity of ‘new’ shares is being issued out to employees, officers, and directors, etc. pursuant to their other agreements and arrangements, etc.
- Paul North.
Since a large hoard of cash tends to attract corporate raiders and similar undesirables, CN’s stock buyback may have the side effect of making it less inviting.