Share buybacks may seem like a shareholder-friendly use of
capital, but unless it's done properly, the practice can be
about as advisable as spitting in Tony Soprano's
spaghetti.
Prior to
the recession, it seemed like pretty much every company
out there was buying back shares hand over fist. For a while,
every day seemed to bring a new billion-dollar share buyback
plan -- and the market cheered it all on.
But was it smart?
For a great many companies, I'd say, it wasn't smart.
Take a gander at the massive buybacks the following companies
made in 2007 only to see their stocks plummet as we headed
into the downturn.
Company
2007 Share Buyback
Buyback as % of
Mid-2007 Market Cap
Return Since
Mid-2007
Valero (NYSE: VLO)
$5.8 billion
14%
(71%)
Macy's (NYSE: M)
$3.3 billion
18%
(52%)
United Microelectronics
$1.7 billion
15%
(47%)
Cypress Semiconductor (NYSE: CY)
$571 million
16%
(56%)
Tempur Pedic
$320 million
15%
(47%) Continued... |