Forum Archive Index - October 2002

[" Hans van der Voorn" <vandervoorn@xtra.co.nz>]

An alternative for STU would be to do what Cavalier did and buy back a
proportion of everyone's shares, thereby treating everyone equally.

While not disagreeing with your logic (that buybacks should be done when the
share price is low), as an investor surely the best approach would be to
sell into the buyback and buy in again later when the price has drifted
down.



Hans
----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Saturday, October 19, 2002 1:53 AM
Subject: Re: [sharechat] A stocktake on STU


>
>
> terry wrote:
> >
> >Snoopy wrote:
> >
> >>The annoying thing is they could obtain the same increase in
> >>ROE by just paying the excess capital back to the shareholders
> >>in the form of a special dividend.  So WHY DIDN'T THEY DO IT!
> >>
> >
> >I guess the obvious reason is that the special dividend
> >would be taxable to the shareholder. Whereas a buyback returns
> >capital in a cost/tax effective manner for the buy/hold shareholder.
> > The brokers would also make a little pocket money.
> >
>
> I accept your answer Terry.  You are right in that paying back
> capital in a lump would be taxable to the shareholders.
>
> However, I fail to see that buying shares at a fully valued price
> (or more as they will have to push the share price up to do it), will
> create wealth for shareholders.   After the buyback has finished the
> share price will drift back (with the associated loss in market
> value of the shares for all shareholders) to fair value.
>
> This doesn't make *investment* sense to me.  Yes, you have made sure
> that 33% of the capital returned keeps out of the hands of the
> government.   But you have destroyed 66% of the capital in buying a
> fully/over valued asset which the directors admit has no immediate
> significant growth prospects.
>
> It seems to me that in a mania to minimse paying tax at any cost,
> the board of STU have made a very poor investment decision for
> remaining shareholders.   I guess the good side of a buyback is that
> it gives a good opportunity for shareholders who feel this way to
> exit at a good price above normal market value during the buyback!
>
> SNOOPY
>
>
>
>
>
> ---------------------------------
> Message sent by Snoopy
> e-mail  tennyson@caverock.net.nz
> on Pegasus Mail version 2.55
> ----------------------------------
> "You can tell me I'm wrong twice,
> but that still only makes me wrong once."
>
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