I recently wrote an article published exclusively on Seeking Alpha, entitled, “Why GE’s Buyback is a Raw Deal for Shareholders.” Share repurchase programs are trumpeted out and rarely questioned. I believe that many, but not enough, investors understand that buybacks can be largely self-serving and hardly in shareowners’ best interests. I encourage you to read the above linked story (link visible in full article view) on GE and note the fact that the impact of share buybacks when looking at shares outstanding is very dismal; stock price performance is equally unimpressive.
I don’t disagree that the market could be undervaluing GE’s operating businesses, but I don’t believe for one moment the value of a buyback plan that effectively costs twice or more the company’s prevailing stock price, leaving shares outstanding immaterially changed. It may be the case that GE’s squandering of excess capital in recent history has further eroded “the market’s” trust and confidence in management; the board has arguably done nothing to remedy the situation. In addition to the raw deal that buybacks can represent, I want to also highly recommend the book, Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers, by Ellen E. Schultz (of the WSJ).
Schultz has done an amazing job of researching and uncovering damning evidence of self-serving executives and board directors short changing and outright ripping off their employees and retirees (as concerns pensions and medical/dental benefits), in what nearly always means much more advantageous benefits to a select few. Share repurchases take on extra importance given that not uncommon 8 and 9-figure executive pension obligations are unfunded. Schultz’ findings prove how absurd the quarterly earnings game is, while raising questions over the de facto primacy of the income statement, the lesser amount of attention paid to balance sheets, and the risk of overlooking footnotes and proxy statements.