Good point re. spinoffs. The Sony Financial spinoff several years ago was much hoped for and initially served well, but its stock price has been languishing in recent years. Still, Sony Financial has remained profitable (and it may in fact be the more interesting investment instead of Sony itself), and the sum of the parts (non-electronics) of Sony story have been tossed around more these days in the Japanese media. Pressure is obviously mounting ever higher. Since spinoffs are difficult in Japan from a tax standpoint and I wouldn't expect Sony to try and offload anything profitable in light of the poor shape of Electronics, especially in a down market. I would expect in the coming years for Japan to reform tax law surrounding spinoffs. Similar to how it eventually came around to enabling share repurchases.
Why General Electric's Buyback Is A Raw Deal For Shareholders [View article]
Regarding my proxy proposal for which GE received no-action approval from the SEC: the context of my "supporting statement" is similar to my article above, calling out the dividend cut, the buyback and share count history, particularly '05 - '08, and GE's cash and equivalents. I have just typed the following so there may be typos. Only a print version exists.
My resolution read:
"The shareholders do not approve of GE's record of value-destroying share buybacks. Accordingly, and in light of our executives' own recognition of GE's "financial strength," "substantial cash generation," and "substantial cash on our balance sheet," the shareholders request the Board of Directors reexamine the company's dividend policy and consider special dividends as a means of returning excess cash to shareholders. This resolution does not ask the Board to cease repurchasing shares."
GE's planned statement of opposition (which it could have subsequently modified) should the SEC have disallowed GE's no-action request:
"Your Board of Directors recommends a vote AGAINST this proposal
Growing long-term shareowner value is a high priority to GE's Board and management. The Board regularly evaluates GE's capital allocation to ensure that it is consistent with this objective and appropriate in light of current business conditions. GE has paid a dividend each quarter for over one hundred years, and on December 9, 2011, the Board approved the fourth dividend increase in less than two years, from $0.15 to $0.17 per share. We design our distribution strategy to provide shareowners a regular cash income and to meet the company's anticipated needs for liquidity. GE believes that a strong liquidity position that supports a favorable credit rating serves the long-term best interests of the company and its shareowners by ensuring access to sufficient funding at acceptable costs to meet our business needs and financial obligations throughout business cycles. The Board actively reviews the company's liquidity position and strategy for the management of cash flows. These determinations are made within the context of our financial and strategic planning processes, which take into consideration a variety of factors, such as our operating commitments, capital allocation and growth objectives, including paying dividends, repurchasing shares, investing in research and development and acquiring industrial businesses. The Board has determined that GE's current cash flow strategy and shareowner distribution strategy supports the company's growth, provides flexibility in the deployment of available cash and maximizes shareowners' return on investment. We do not believe in these circumstances that a special dividend is warranted. Therefore, the Board recommends a vote AGAINST this proposal."
Why General Electric's Buyback Is A Raw Deal For Shareholders [View article]
Given the volume of comments I am going to follow-up here rather than reply in-line. And thanks again for all the comments! At the end appears a clarification as concerns one item in the article; I will have it corrected by SA's editors. In a separate comment I will share my proposal and GE's statement of opposition as I mentioned in my comment earlier today.
Indeed, any shares held in a non-retirement account would be subject to tax on dividends. Nevertheless, the proceeds still exceed the best case scenario of 2 cents to EPS in 2013 even with a 15 multiplier.
No question there is material dilution by way of equity-linked compensation. Some of which is no doubt well-deserved, arguably for the non-senior-most employees. It is very much the truth as one commented that senior officers received tens of millions of not only low-priced but also irregularly timed options (to capture the single-digit share price) after the crisis. A shareowner proposal to clawback/forfeit those options was defeated.
No question either that GE is partially buying back stock because it perceives its shares to be undervalued. I argued recently in an article on SA that GE is significantly undervalued. But the conditions include that it stops wasting shareowner money and re-earns the trust of the so-called market. That GE Capital is resuming its dividend to the parent is great. Otherwise, the share buybacks are likely to continue to have limited effect because simultaneously obviously GE is repurchasing shares to offset its equity-linked compensation. Somehow GE has not been able to reduce share count meaningfully; compare that to IBM, another blue chip that utilizes sizable buybacks that has achieved both a higher share price and a much more meaningful share count reduction.
That this is an "angry article" is not a fair characterization. Instead the point is to raise awareness and highlight what has been going on. As a shareowner I have to hope management is acting in shareowners' best interests, ditto for the board. However, I question both, especially the board, whose job is to both steward shareowner value and hold management accountable. Current/former employees, sector analysts, and other professionals can more readily comment on GE's business operations. As I have done for the past three years, I reviewed again this year the directors up for reelection and continue to believe the board needs to be overhauled. Such articles can be found easily on SA.
***Clarification/corre... the last sentence in the italicized indented paragraph that contains figures about the buybacks. It is fairly trivial regarding what's unfortunately transpired in Q1: Share count INCREASED in Q1. GE disclosed buying back 3.334M shares at average cost of $19.18. I misread its cash flow statement that $127M was (what I thought) spent on buybacks. Obviously 3.334 x $19.18 does not equal $127M. The $127M figure appears to be the net cost reflecting monies received when options were exercised offset by the amount spent on buybacks. It seems to make sense if shares outstanding increased by 14 million, the monies received for exercising them may have been around $191M (which is $127M + the 3.334M shares repurchased x $19.18 avg price; hence $191M - $64M = $127M). Then, $191M for 14M options would have meant exercise prices of around $13.60/share. The bottom-line is that we are left with a larger number of shares outstanding.
Why General Electric's Buyback Is A Raw Deal For Shareholders [View article]
Thank you, everyone, for your comments. I appreciate them all and I will be replying as soon as I get a chance. Meantime, an important fact not included above is that "shareowners" approved item #3 in this year's proxy! Also, later I will share my above-mentioned dividend policy (reconsideration) proposal and GE's planned statement of opposition it mailed me in advance of the SEC's ruling since the SEC was overwhelmed with no-action requests and GE's proxy printing deadline was rapidly approaching.
Excerpt (re. voting item #3) my pre-Annual Meeting proxy review:
3. GE wants your permission to increase the number of its shares issued by 425 million for compensation purposes. That represents around 4% of shares outstanding. It's important to consider voting AGAINST this proposal since what is certain to happen is that GE will also be trumpeting out a renewed share repurchase plan when its current one expires as it needs to continue to repurchase shares in order to try and keep a lid on their ever rising count. While some reporters and investors may cheer buybacks, the fact is the "market" knows better with GE. My own research shows GE has an impeccable record of value destruction by means of share repurchases.
Thanks, Jim. It would be great to see more shareowners writing proxy reviews. Your sharing of your votes and reasoning is also helpful. Really need more individuals and institutional investors to step up and become more engaged in their own right and with one another. The latter after all are managing the former's (our!) money.
Thanks for leaving this comment. I will contact you privately to see if we can figure out where your control number went. It's not impossible that it wasn't made easy to figure out how to vote online. I've even received printed proxy materials before that arrived on the day of a meeting and I live only a few hours from the proxy service company (unless of course they print and send from elsewhere). Anything is possible when it comes to proxies/VIFs.
Time Again To Trade The Collapse Of The Yen [View article]
I don't envy those trying to trade the collapse of the yen and the demise of Japan stories. In fact, I'd say it could arguably one of the most misinformed obvious trades. I'm biased, however, because I take a "value" approach to investing for one, and I have spent a significant amount of time living in Japan and also just published a book: Investing in Japan: There is no stock market as undervalued and as misunderstood. As you can see from the subtitle, it's a contrarian take to the mainstream reporting and conventional wisdom. I specifically discuss Kyle Bass and D. Einhorn's "bets." It's worth the money for my book to traders just to know what risks there are and factors at play beside the internally-funded argument that's finally become well known. Book link: http://amzn.to/JvMDkL
Thank you for your article, too, TLF24. I'm consistently seeing similar sentiments each time around. Sad. But yes, hopefully a changing of the guard. That may be impossible given how entrenched they are, unless we get institutional vote support, so at least we'll hope for a change of mindset.
Thanks, jimmy46, that could be true, who knows with GE Capital. The latest earnings report suggests continued improvements, record capital adequacy and RE now profitable. Even if dismissing value of GEC, GE's valuation looks compelling on its own, thus I used industrial comps.
Thank you, mostserene1. Never know if we'll see a $15 type pps again, but GE's not exactly off to the races post-earnings, either. Final vote results are supposed to be published within four business days after the AGM. We'll see if there's an improvement over last year, which was disappointing (wrt AGAINST tallies).
Thanks, mjk0259. Please share the link if you have it. I'll fish around for it when I get a chance, if not. Probably should share a copy with IR and the board, too.
Could Sony Disappear? [View article]
Why General Electric's Buyback Is A Raw Deal For Shareholders [View article]
My resolution read:
"The shareholders do not approve of GE's record of value-destroying share buybacks. Accordingly, and in light of our executives' own recognition of GE's "financial strength," "substantial cash generation," and "substantial cash on our balance sheet," the shareholders request the Board of Directors reexamine the company's dividend policy and consider special dividends as a means of returning excess cash to shareholders. This resolution does not ask the Board to cease repurchasing shares."
GE's planned statement of opposition (which it could have subsequently modified) should the SEC have disallowed GE's no-action request:
"Your Board of Directors recommends a vote AGAINST this proposal
Growing long-term shareowner value is a high priority to GE's Board and management. The Board regularly evaluates GE's capital allocation to ensure that it is consistent with this objective and appropriate in light of current business conditions. GE has paid a dividend each quarter for over one hundred years, and on December 9, 2011, the Board approved the fourth dividend increase in less than two years, from $0.15 to $0.17 per share. We design our distribution strategy to provide shareowners a regular cash income and to meet the company's anticipated needs for liquidity. GE believes that a strong liquidity position that supports a favorable credit rating serves the long-term best interests of the company and its shareowners by ensuring access to sufficient funding at acceptable costs to meet our business needs and financial obligations throughout business cycles. The Board actively reviews the company's liquidity position and strategy for the management of cash flows. These determinations are made within the context of our financial and strategic planning processes, which take into consideration a variety of factors, such as our operating commitments, capital allocation and growth objectives, including paying dividends, repurchasing shares, investing in research and development and acquiring industrial businesses. The Board has determined that GE's current cash flow strategy and shareowner distribution strategy supports the company's growth, provides flexibility in the deployment of available cash and maximizes shareowners' return on investment. We do not believe in these circumstances that a special dividend is warranted. Therefore, the Board recommends a vote AGAINST this proposal."
Why General Electric's Buyback Is A Raw Deal For Shareholders [View article]
Indeed, any shares held in a non-retirement account would be subject to tax on dividends. Nevertheless, the proceeds still exceed the best case scenario of 2 cents to EPS in 2013 even with a 15 multiplier.
No question there is material dilution by way of equity-linked compensation. Some of which is no doubt well-deserved, arguably for the non-senior-most employees. It is very much the truth as one commented that senior officers received tens of millions of not only low-priced but also irregularly timed options (to capture the single-digit share price) after the crisis. A shareowner proposal to clawback/forfeit those options was defeated.
No question either that GE is partially buying back stock because it perceives its shares to be undervalued. I argued recently in an article on SA that GE is significantly undervalued. But the conditions include that it stops wasting shareowner money and re-earns the trust of the so-called market. That GE Capital is resuming its dividend to the parent is great. Otherwise, the share buybacks are likely to continue to have limited effect because simultaneously obviously GE is repurchasing shares to offset its equity-linked compensation. Somehow GE has not been able to reduce share count meaningfully; compare that to IBM, another blue chip that utilizes sizable buybacks that has achieved both a higher share price and a much more meaningful share count reduction.
That this is an "angry article" is not a fair characterization. Instead the point is to raise awareness and highlight what has been going on. As a shareowner I have to hope management is acting in shareowners' best interests, ditto for the board. However, I question both, especially the board, whose job is to both steward shareowner value and hold management accountable. Current/former employees, sector analysts, and other professionals can more readily comment on GE's business operations. As I have done for the past three years, I reviewed again this year the directors up for reelection and continue to believe the board needs to be overhauled. Such articles can be found easily on SA.
***Clarification/corre... the last sentence in the italicized indented paragraph that contains figures about the buybacks. It is fairly trivial regarding what's unfortunately transpired in Q1: Share count INCREASED in Q1. GE disclosed buying back 3.334M shares at average cost of $19.18. I misread its cash flow statement that $127M was (what I thought) spent on buybacks. Obviously 3.334 x $19.18 does not equal $127M. The $127M figure appears to be the net cost reflecting monies received when options were exercised offset by the amount spent on buybacks. It seems to make sense if shares outstanding increased by 14 million, the monies received for exercising them may have been around $191M (which is $127M + the 3.334M shares repurchased x $19.18 avg price; hence $191M - $64M = $127M). Then, $191M for 14M options would have meant exercise prices of around $13.60/share. The bottom-line is that we are left with a larger number of shares outstanding.
Why General Electric's Buyback Is A Raw Deal For Shareholders [View article]
Excerpt (re. voting item #3) my pre-Annual Meeting proxy review:
3. GE wants your permission to increase the number of its shares issued by 425 million for compensation purposes. That represents around 4% of shares outstanding. It's important to consider voting AGAINST this proposal since what is certain to happen is that GE will also be trumpeting out a renewed share repurchase plan when its current one expires as it needs to continue to repurchase shares in order to try and keep a lid on their ever rising count. While some reporters and investors may cheer buybacks, the fact is the "market" knows better with GE. My own research shows GE has an impeccable record of value destruction by means of share repurchases.
Link to original proxy review: http://seekingalpha.co...
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