Forum Archive Index - June 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Brian,

>
> 
>Some talk on the other channel that GPG's considering a buy back. If
>this is the case I'm wondering if this is causing the negative
>impact on the price and if is so why, (sounds like question time in
>the Beehive!) I would have thought a buy back indicated a cheap
>price and nothing else to invest in but long term should benefit the
>value of the shares.
> 
>Buffett likes buy backs. Snoopy, any thoughts.
> 
> 


A few years ago when Sir Selwyn Cushing was at the helm of BIL, he 
instituted a buy back of shares at 40c, equivalent to 80c on the 
consolidated share price today.   BIL International passed a 
resolution at their last AGM enabling them to issue vast quantities 
of shares to existing staff at far less than 80c.

Then we had the example of Telecom while under American control, who 
in 1997 purchased 32.3 million shares on the New Zealand Stock 
Exchange for an average of $6.55.  Yet during the current year they 
have placed shares in the market (sold them back to the market) at 
only $5.50! 

These are the sort of actions that, over the medium term, destroy 
existing shareholder value.   Buybacks are only good if the company 
buying its own shares has enough capital for its future needs.  This 
was clearly not the case with either BIL or TEL.

I don't like the general idea of an investment company buying back 
its own shares.  I'd take it as a signal that they (in this case 
GPG) have looked around the market and can find nothing better to 
invest their money in.  I would say that an investment company buying 
back its own shares is a negative signal given a medium term view 
forwards.   It certainly worked out that way for BIL!    Short term a 
GPG buyback may palacate nervous investors, who don't like seeing 
their share price drop.  A buyback may steady the share price chart.  
 But I think it will be at the expense of future growth, provided the 
managers at GPG haven't lost their midas touch.  And I see no 
evidence that they have.  

A GPG buyback may well benefit the value of the shares (in teh short 
tyerm), but will it benefit the value of the business?   I see the 
latter as fundamentally more important.

SNOOPY

disclosure: do not hold GPG

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