News that, with the latest stock buybacks, the Walton family now owns 50.3% of Wal-Mart (NYSE:WMT), the company founded by Sam Walton, led to extensive speculation concerning what that might mean for the number of outside directors at the company.
But it should also tell investors something else. The Waltons are slowly taking their father's company private.
Most of the late Sam Walton's heirs, with the notable exception of Sam R. Walton, a grandson of the founder, are very conservative politically. Members of the family have contributed heavily toward efforts to expand charter schools and privatize American education. That doesn't appear to have changed following the death of John Walton in a 2005 plane crash - in fact it seems to have accelerated. It is estimated that the four Walton heirs gave $813,000 in political contributions last year -- all of it to Republicans.
Despite the growing family control, dissent with the company's policies and politics is growing. Some 12.1% of shares were voted against CEO Mike Duke at last week's annual meeting, about 25% of the company's non-Walton shares. The latest share buyback, of $15 billion, does not sound like much, but it represents over 10% of the remaining shares held outside the family.
In the near term, the squeeze should be highly profitable for remaining shareholders. Over the last year the value of shares has advanced 11.08%, although net income was up only 7.8%, the year before that 2.7%, and the year before that 6.1%. The stock continues to yield a respectable 2.48%, and the dividend was raised seven cents a share earlier this year, a raise of 11.75%.
Don't think this scenario is possible? Don't think the family would desire it? Consider that the politically notorious Koch Brothers' 84%-owned Koch Industries is privately held. It has more than doubled its revenues just since 2005 -- they are now $115 billion. The Walton siblings must believe they can do just as well, freed of the need to please public shareholders and remain "just" a retailer.
It would also liberate them to become more active players in the nation's politics, as the Koch Brothers are. The company recently hired former George W. Bush strategist Dan Bartlett to head its public relations operation, replacing a Democrat.
The Waltons are halfway toward becoming private, and by this time next year will be 60% of the way there. At some point they should be able to combine their financial might into a leveraged buyout of the remaining public shareholders.
For investors, this is great news. You can buy WMT shares certain of a return, despite slower growth, just on the strength of the buybacks.