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“Bust Out 1” seems basically OK to me. Everyone hates stock buybacks, but they’re economically very similar to dividends, and seem like a reasonable way for a f
by yellowstuff 3y ago
“Bust Out 1” seems basically OK to me. Everyone hates stock buybacks, but they’re economically very similar to dividends, and seem like a reasonable way for a fading company to return cash to shareholders. Could BBB have survived if they spent $4B on a new initiative instead of returning it to shareholders? I doubt it.
“Bust Out 3” seems pretty sleazy, selling stock in a failed company to retail investors. But hey, that’s what they said about Hertz, so maybe there’s some universe where this could have worked out OK?
I agree “Bust Out 2” was just a scam. Ryan Cohen is a grifter.
- fred_is_fred 3y agoIf you acknowledge that the company was doomed anyway in 2014 (which I don't think mgmt believed) then the proper solution would have been to find a buyer rather than 5 years of buybacks. And personally I don't think it was a foregone conclusion that the end would come 9 years later.
- dragonwriter 3y agoBorrowing money and turning it over to shareholders via buybacks and the destroying the debt with bankruptcy is obviously better serving the shareholder's interests. Not sure what standard for “proper” you are using, or how you expect it to be a norm in a basically-capitalist economy.
- TedDoesntTalk 3y ago> standard for “proper” The board is fiscally responsible to the company and its future, not shareholders. It should not have approved a buyback program funded with debt because it is not in the best interest of the company. It was in the best interest of current shareholders.
- Panzer04 3y agoI don't see the distinction. What sbest for shareholders may well not be best for the employees of the company... but that's just how it is. Companies are run to benefit the capital that funded them, employees are just an expense.
- TedDoesntTalk 3y agoRead up on “fiduciary responsibility”. It has nothing to do with “employees of the company” or “to the benefit of the capital that funded them.” Fiduciary responsibility is every board member’s responsibility and is legally binding (documents are signed stating as such when one becomes a board member). There are probably law suits pending against board members because they broke this responsibility.
- JumpCrisscross 3y ago> Fiduciary responsibility is every board member’s responsibility and is legally binding Fiduciaries are entrusted by a third party. The third party, for corporate boards, is the shareholders. Boards aren't obligated to maximize profits; that's a myth. But they do have a fiduciary responsibility to the shareholders. It's their company.
- deleted 3y ago[deleted]
- xwolfi 3y agoThe board represents the shareholders, the management represents the company. The board absolutely has to care about shareholders or shares would be entirely worthless... and therefore not a good avenue to finance the company at a lower cost than bonds. It's a delicate balance but you cant blame a board for saving their shareholders, that's why we pay them as owners of the business.
- xhrpost 3y ago> return cash to shareholders I think the highlight here is that the buybacks were funded by debt. They're not "returning" anything.
- darth_avocado 3y agoActually it’s not okay. You’re basically making money for investors who are “in on it” at the moment at the expense of future investors and other large investors who are just in the stock as a result of big fund diversification. My retirement money could be funding the sleazy stock sales from the insiders while they sell out the company.
- NotYourLawyer 3y agoWhen interest rates are low, a rational corporation will want to be funded in large part by debt.
- actionablefiber 3y agoBorrowing money to buy back stock is the opposite of funding: it's de-funding. It's the acquisition of liabilities with no offsetting acquisition of assets or future cash flows.
- nradov 3y agoSo what? It's just a change in capital structure. Most corporations are funded by a mix of equity and debt. On average, taking on some debt boosts shareholder returns despite the increased risk of bankruptcy.
- colinsane 3y ago> Everyone hates stock buybacks, but they’re economically very similar to dividends, and seem like a reasonable way for a fading company to return cash to shareholders. consider the passive investor who just Buys and Holds. three alternate timelines: 1) company pays dividends for 5 years and goes bust with a balance sheet of zero. 2) company sells off its assets over 5 years and dissolves. 3) company does share buybacks for five years and goes bust. in 1) and 2) the passive investor receives the same value as any other shareholder. in 3) the passive investor receives $0 and the value accrues exclusively to those shareholders who sold before the end. the combination or buyback + predictable bankruptcy makes sense only if you’re a shareholder close to the company seeking to maximize your own distribution. putting “right” and “wrong” aside, this pattern should at least make you more wary of being a passive investor, generally.
- empath-nirvana 3y agoNobody owes passive investors money. It is an investment strategy that many people take, and like any strategy it can be exploited. If you buy stock and don't look at how the company you own is doing, then you deserve to lose your money. Nobody lied here. Everything was done right out in the open.
- colinsane 3y agoin whichever branch of the multiverse has alternate me by some bizarre chance hosting you at a dinner party, remember to not take off your shoes. alternate me will meet you in your own ethical framework and confiscate them for himself when you're not paying attention.
- empath-nirvana 3y agoIf you include: "Oh, btw, if you take off your shoes, I'm keeping them" on the party invite, and follow up with quarterly updates that you're going to be taking everyone's shoes, it would be my own fault for going, wouldn't it?
- mactrey 3y ago