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20-08-2024 : Do share buybacks boost share prices?

For those who might be tempted to answer yes to this question, despite the countless academic research papers that answer not significantly, here is a graph of the 10-year performance of the S&P 500 (in red) and the 100 components of this index that have bought back the most shares (S&P buyback, in blue), taken from La Lettre Vernimmen.net of July-August:

 

 

While the S&P 500 buyback returned, dividends reinvested, a return of 9% over 10 years, the S&P 500 returned 13%, and with less risk (standard deviation of daily returns 12% lower than that of the S&P 500 buyback). Why did this happen?

Because the aim of share buybacks is not to boost share prices, but simply to return to the financial markets, which financed the company making the buyback, equity that has become surplus, at least transitively, to its needs.

Admittedly, this graph is not intended to be scientific, but if share buy-backs were to push share prices upwards after 10 years, this should be visible in share prices!

The only source of value creation from buybacks is when the company is able to do so at a time when its share price is temporarily depressed and moving away from its intrinsic value.

Do share buybacks boost share prices?

 

For those who might be tempted to answer yes to this question, despite the countless academic research papers that answer not significantly, here is a graph of the 10-year performance of the S&P 500 (in red) and the 100 components of this index that have bought back the most shares (S&P buyback, in blue), taken from La Lettre Vernimmen.net of July-August:

 

 

 

 

While the S&P 500 buyback returned, dividends reinvested, a return of 9% over 10 years, the S&P 500 returned 13%, and with less risk (standard deviation of daily returns 12% lower than that of the S&P 500 buyback). Why did this happen?

 

Because the aim of share buybacks is not to boost share prices, but simply to return to the financial markets, which financed the company making the buyback, equity that has become surplus, at least transitively, to its needs.

 

Admittedly, this graph is not intended to be scientific, but if share buy-backs were to push share prices upwards after 10 years, this should be visible in share prices!

 

 The only source of value creation from buybacks is when the company is able to do so at a time when its share price is temporarily depressed and moving away from its intrinsic value.

 

17-08-2024 : 3 lessons from the recent squeeze out of Adevinta

While the delisting of Adevinta (le Bon Coin in France, or L’Argus brands in Belgium with 2dehands/ 2ememain, in the Netherlands with Marktplaats, or in Germany with Mobile.de)  completed a few weeks ago, is the 4th largest European LBO of all time (€14 billion in entreprise value), this transaction has 3 lessons which are the subject of the news article of the July-August Vernimmen.com newsletter issue.

 

One of them is that Adevinta's minority shareholders, unconvinced by the delisting price (like the independent directors), were given the opportunity to reinvest under the same conditions alongside the initiating LBO funds. This puts an end to the price debate, at least for those shareholders who are able to hold unlisted and highly leveraged shares, which not everyone can do. The initiators increase their chances of crossing the delisting threshold (usually 90%).

 

This technique, used in this particular case on the Oslo Stock Exchange, had already been tried out a few years ago in Paris, but on a much smaller deal (Nextstage); it has subsequently been used by L'Occitane en Provence for its own delisting from the Hong Kong Stock Exchange; and is currently being used on the London Stock Exchange by the consortium of LBO funds seeking to delist the Hargreaves Lansdown financial group for £5.4 billion. It's true that when certain large minority shareholders are offered this possibility before the launch of the offer, not offering it to all shareholders who wish to do so as part of the offer may come as a problem.