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The effort of evaluating stock buybacks can be somewhat of a tricky thing because it always requires an evaluation of the company's future conduct and performance to determine the results of a given stock buyback. The general criterion that evaluates a buyback's success is this: if a company pays more than the intrinsic value of the company, then some value is destroyed. If the company pays less than the intrinsic value of the company, then some value is created. That sounds simple enough. With that being said, it is a very subjective determination to decide what exactly the intrinsic value of a company might be for the purpose of evaluating the wisdom behind a given stock buyback program.

While it may difficult to definitively determine the amount of value created and value destroyed by a given stock buyback policy, I do think it is possible to get a handle on the general results of some companies' buyback policies. Below, I am going to present my list of "Ten Worst Stock Buybacks of the Millennium". I tried to keep my methodology somewhat straightforward: I combined the amount of money spent on buybacks over the past twelve years and compared it to the prevailing market price of the stock. What this process of evaluation does not adjust for is the prospect that the current market value of the stock may not be an accurate proxy for the firm's net worth, so if you think any of the prevailing stock market prices for any of the firms listed below are either particularly overvalued or undervalued right now, you should adjust the results accordingly.

Here is a top ten list of the worst stock buyback programs this millennium (note: I limited my research to stocks that bought back at least $1 billion worth of stock in total):

10. Electronic Arts (EA). The company spent $1.03 billion buying back shares that are currently worth $368 million. Annualized Return of the Buyback Program= -21%

9. Donnelley R&R Sons (RRD). The company spent $1.14 billion buying back shares that are currently worth $594 million. Annualized Return of the Buyback Program= -21%

8. Bank of America (BAC). The company spent $30.2 billion buying back shares that are currently worth $4.7 billion. Annualized Return of the Buyback Program= -23%

7. Regions Financial Corp (RF). The company spent $2.61 billion buying back shares that are currently worth $479 million. Annualized Return of the Buyback Program= -24%

6. Alcoa (AA). The company spent $4.1 billion buying back shares that are currently worth $995 million. Annualized Return of the Buyback Program= -25%

5. Hartford Financial (HIG). The company spent $2.31 billion buying back shares that are currently worth $518 million. Annualized Return of the Buyback Program= -28%

4. Genworth Financial (GNW). The company spent $1.71 billion buying back shares that are currently worth $283 million. Annualized Return of the Buyback Program= -29%

3. Sprint Nextel (S). The company spent $3.40 billion buying back shares that are currently worth $376 million. Annualized Return of the Buyback Program= -31%

2. Citigroup (C). The company spent $20.9 billion buying back shares that are currently worth $1.3 billion. Annualized Return of the Buyback Program= -34%

1. AIG (AIG). The company spent $8.32 billion buying back shares that are currently worth $284 million. Annualized Return of the Buyback Program= -52%

I used Data Stream and Credit Suisse as my source for putting up this list. As many of you probably would have guessed, financial firms are disproportionately members of this value-destruction club. This makes sense for three reasons: (1) financial services firms have generally been the most ready acceptors of share buybacks as an alternative form of rewarding shareholders instead of dividends, (2) many of these financial firms were gushing out record profits before the financial crisis hit, giving them a lot of money that could be used for share buybacks, and (3) the stock prices of these types of firms got clobbered the most during the financial crisis, with most yet to recover to the prices of their 2007 highs.

These ten companies illustrate on a grand scale the most common pitfall that can undo the potential efficacy of a stock buyback program: when companies are bringing in record profits and stock prices are high, the companies engage in share buybacks, essentially "buying high." Of course, when the situation reverses and stock prices slide, companies cut their buyback programs, essentially refusing to "buy low." When you see a company announce a buyback program, the first question you should ask is this: On what terms are the shares being repurchased? If you are satisfied with the terms, then no problem. If there are no terms, then you need to ask yourself whether shareholder value would be created or destroyed if shares got bought back at the current market price. And if you conclude that shareholder value would be destroyed based on the current buyback practice, you need to take a hard look and decide whether the benefits of owning the stock outweigh the folly of the current buyback program.

Source: The 10 Worst Stock Buybacks Of The Millennium