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Cash & Working Capital

Still Bingeing on Buybacks

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March 12, 2019

US MNCs continue the stock buybackapalooza with a record of authorizations in February

BenjaminsUS multinationals are continuing their stock buyback binge into the new year. According to Birinyi and Associates, 131 companies began the process of stock repurchases, authorizing $163.5 billion worth last month. That’s a record for February, exceeding last year’s February total by more than $10 billion, itself a record. Birinyi said the largest program announced in the month was by Chevron, which authorized a $25 billion in buybacks.

Last year US companies bought back $797.9 billion of their own stock, according to early estimates from S&P Dow Jones Indices. Along with a reported $456.3bn in dividends, overall shareholder returns were up 33% last year over the year before.

In the NeuGroup, there has been a lot of discussion around buyback plans and strategies. At a recent meeting of the Treasurers’ Group of Meg-Caps (tMega), several members said tax reform has fueled bigger and better plans to give cash back to shareholders. One member said since reform, cash has been building up and while not “fully available,” it’s “more freely available” than before. As such, the company is “doing consistent share repurchases,” increased its dividend and de-levered the balance sheet. Nonetheless is still in search of a “strategy to deploy cash.”

Another member said his company’s CEO is creating a five-year business plan and once everyone agrees to the it and has a good idea of what the company is (and will be) worth, treasury can then “tailor an opportunistic buyback plan.” He added that the board isn’t in agreement yet but management hopes to get it to that point.

At the last tMega meeting at the end of last year, one member outlined his strategy for creating a buyback plan. The member described a three-point framework that included:
  1. Achieving stated capital structure goals.
  2. Updating the valuation thesis regularly, validating repurchase decisions through retrospective analysis and adjusting for market conditions, changing business conditions or other factors.
  3. Execution: taking advantage of multiple buyback tools to manage through open markets and blackouts, while considering volatility, ADTV, VWAP and other factors to measure program success, bank execution and other factors.
Meanwhile, members didn’t take too seriously threats from at least two US senators, Democrat Chuck Schumer and Independent Bernie Sanders, who wrote an op-ed in the New York Times proposing legislation that would ban stock repurchases unless the company first paid workers at least $15 an hour and offered better benefits. One big company treasurer said he had been told that the proposal was “all noise.”

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