In my view, one of the best signals of undervaluation to minority shareholders is to repurchase stock. This hasn't happened since 2000 when the company bought back merely $5.7 million of the stock. At the end of FY 2000, there were roughly 137 million shares outstanding, revenues were $2.47 billion and EBIT was $715 million. At the end of FY 2006, there are 189 million fully diluted shares outstanding up about 40%. Revenues are essentially flat at $2.3 billion and EBIT is $111 million.
Corporate governance is undermined by the mini-vote accorded the new class C stock in my opinion. Whether the new class C stock is issued now or later, management has indicated that it chooses to be entrenched by providing shareholders even less say. Class B shares, controlled by Dr. Zandman have ten times the vote of the common. Class C shares will have one tenth the vote of the Class A and consequently one one-hundredth the vote of a "Zandman" common. In my view, boards of directors are more accountable to shareholders when they have to respond to a meaningful vote of minority shareholders. A broad system of accountability is created by providing meaningful voting rights.
Returns on capital remain sub-standard. Returns on capital of 2-3% are well below any reasonable guess at cost of capital. This is true for many of VSH's competitors as well, however, many are earning higher ROIC. For example on a TTM basis, AVX has a 4.1% ROIC, CTS has 4.8%, and International Rectifier 5.4%. AVX and CTS have bought back stock as well as returned capital to shareholders through dividends. In the most recent quarter, the return on capital for AVX is 6.65% and that of CTS is 8.11% whereas VSH's is less than 3%.