Are stock repurchases harming American corporations?
Reuters yesterday posted a investigative piece under the less-than-neutral logo “The Cannibalized Company” showing just how much buybacks have grown in recent years. Its study of more than 3,000 companies found 60% have bought back shares since 2010, and in fiscal 2014 their spending on buybacks and dividends surpassed their combined net income.
Among the 1900 firms in the study that have bought back shares since 2010, buybacks and dividends were equal to 113% of their total capital spending, compared with 60% in 2000 and 38% in 1990.
Stock repurchases, of course, are just one way companies return cash to shareholders. Unlike the headline writers at Reuters, we don’t automatically assume companies have better uses for that money than shareholders do. But the rise in buybacks since 2010 is striking, especially at a time when technology is transforming the fundamentals of American corporations and making a strong case for investment.
The change may be partly driven by corporate compensation schemes tied to stock price. But it’s also one of the legacies of the Fed’s seven years of zero interest rates. Desperate for yield, activist investors have been turning up the heat on companies, prioritizing short-term returns over investment in growth. No wonder start-ups are so leery of the public markets these days.
Separately, the Paris attacks seem to be having little effect on the stock market, but they are affecting some company’s investment policies, and they are making the GOP candidates even more strident on immigration.
More news below. If you are looking for books to buy for the holidays, consider these recommendations from Pepsi CEO Indra Nooyi, Facebook CEO Mark Zuckerberg, and Marriott CEO Arne Sorenson, among others.
• U.S. stocks start week off strong
U.S. stocks, as well as markets around the world, reacted in a muted fashion following deadly attacks in Paris late Friday – with the Dow Jones Industrial Average ending up about 238 points, or 1.4%. Financial history has shown the U.S. stock market often takes a short-term hit after terror incidents, but that the declines are short lived. And because the attacks occurred late on Friday (with markets not reopening until Monday), it eliminated the chance for a knee-jerk reaction. USA Today
• Marriott CEO hush-hush on Starwood
When a deal between Marriott International and Starwood Hotels and Resorts Worldwide emerged yesterday for $12.2 billion, one of the first questions was this: how did we not see this one coming? Rumors about a takeover for Starwood had been swirling – but the focus was on three different Chinese entities, as well as Hyatt Hotels and even InterContinental at one point. "We are very compulsive about keeping confidential things confidential," Marriott CEO Arne Sorenson told Fortune. But interestingly, the deal's history dates back seven months when Starwood originally put itself up for strategic review. Fortune
• Buffett's Berkshire shuffles holdings
Billionaire Warren Buffett's Berkshire Hathaway added to its investments in IBM and General Motors during the third quarter, scooping up 1.5 million shares in IBM and adding nine million shares to its holding in GM. A number of Berkshire's largest holdings have suffered recently, including Walmart – which Buffett cut his stake in by 7% in the third quarter. Berkshire also sold nearly 1.7 million shares of Goldman Sachs and completely exited his position in Viacom. Fortune
• Liberty Global inks $5.3 billion deal
John Malone's Liberty Global agreed to pay $5.3 billion to buy Cable & Wireless Communications, a cash-and-stock deal to extend the U.S. billionaire's European cable empire deeper into Latin America. Malone has already spent more than $50 billion amassing cable firms across Europe the past decade – looking to do the same in parts of Latin America. Malone was already a shareholder in Cable & Wireless when he bought cable-TV and Internet provider Columbus International last year. Bloomberg
• Another craft brewer sells to Big Beer
Ballast Point, the California craft brewer best known for its popular Sculpin IPA, has agreed to sell itself for almost $1 billion to Constellation Brands – the parent of Mexican beers Corona and Modelo, Svedka vodka, and a slate of wines. The deal is the latest takeover by a large Big Beer company for a smaller, but faster growing rival. But while rivals like Anheuser-Busch InBev and Heineken are buying craft beer brands as they themselves face slow growth in the U.S., Constellation's Mexican-produced beers are still growing and gaining market share. A deal for a hot craft brand will augment the company's success in the alcoholic beverage world. Fortune
Around the Water Cooler
• Square, Tinder to go public this week
While technology initial public offerings have been pretty ho-hum this year, the markets are anticipating four deals from the sector this week – with great interest expected for payments company Square and online dating company Match Group, the parent of Match.com and Tinder. Match Group is profitable and if it were to price at the midpoint of the expected range, it would have an initial public offering of about $3.12 billion. Square, founded and led by Twitter CEO Jack Dorsey, isn't profitable but could still be worth close to $3.88 billion if it raises the amount of money expected at the midpoint. Fortune
• Lowe's gives home tech a facelift
Lowe's has introduced a new hub to let people automate the lights, locks and even pet doors in their home, as the home-improvement retailer wants to rebrand itself in a way that will focus more on installing connected home products. The latest version of the Iris home automation hub costs $59.99, a $40 price decrease but still $10 above what rival Home Depot charges. Fortune