TSR's Buyback Plan: Lessons from an Activist Investor

TSR Inc. (TSRI) [$4.19 0.00%, market cap: $19.1M] just announced a stock buyback of about 6.7% of its outstanding shares. This may come as a surprise to some investors, however, it is not a surprise to me. I was the one who recommended it, in a letter (pdf file) that I sent to TSR directors back in late June 2007. TSR is a tiny computer staffing firm with a highly under-leveraged balance sheet (it has a lot of cash).

Did my actions directly cause the stock buyback? Probably not. The directors were not afraid of an investor with less than 0.5% of the shares outstanding in his posession. But, it certainly did not hurt that I wrote and suggested that the company buy back stock (for a good reason, I might add). Perhaps that was just the push the directors needed to get them thinking about ways to deal with TSR’s cash hoard.

Perhaps TSR will take my other advice and declassify its board of directors. If not, I may not just sit back and wait. I might even try to get that on the next proxy ballot myself.

If you are too lazy to read my letter, here is my strongest reason for a buyback (which would reduce the company’s cash):

We of course do not need an academic study to prove the obvious point that the key driver of shareholder value is the ability of the company to provide a return on investment. A 5% yield in treasury securities that comprise the majority of a company’s equity is ipso facto inadequate for any corporation.

Disclosure: I am long TSRI.