Initial Comments on Walgreen Buyback Issues
Alternative research sources
on initial discussions, views of the “Issues to Be Considered”
defined in Wednesday’s report are
generally consistent in their analyses of results, but clearly differ
in how those results will benefit them. These positions may be
summarized as follows:
Investors with long term equity or debt perspectives generally
focus primarily on how a buyback policy will impact capitalization
risk and corporate adaptability.
Most analysts and corporate finance professionals view buybacks as
a potentially efficient alternative to dividends for distributing
cash to shareholders, but not as a reliable means of investing in
underpriced securities to improve a company’s capitalization.
Everyone, literally, recognizes the benefits of buyback
commitments to shareholders with immediate interests in selling
their positions or establishing portfolio valuations.
In private conversations, both corporate and fund managers
reported discussing buyback commitments as a common and widely
accepted means of winning investor support.
Addressing broader capital market and corporate management concerns,
the Financial Times columnist and former investment banker
Andrew Smithers provided a very simple email statement of essential
considerations for Forum participants, referring to his recently
published commentary on the subject for more detailed explanations:
…I think that the attention should be concentrated on the damage done
to the economy by current management remuneration systems which
encourage both low investment and high buy-backs.
If shareholders are concerned about the damage they are doing to the
economy they should change their systems of management remuneration.
If shareholders are not concerned about this but merely about their
own more direct interests the issue is whether they are long or short
Short term investors probably benefit from buy-backs, as they provide
a buyer who is uninterested in the value of the shares to whom they
If they are long term shareholders the issue is not directly about
buy-backs but whether management is being encouraged by the
remuneration contracts to take risks with their companies' long term
future by pushing up profit margins and pushing down investment.
While this program should remain focused on investor decisions
relating to the specific Walgreen buyback issues, it is of course
understood that these decisions must be made in the broader context of
It should also be understood that we will consider the responsibility
of a company’s management to be (a) conducting the business of the
corporation and (b) assuring fair investor access to decision-making
information. Traditionally, making a market for secondary trading in a
company’s stock has been considered the responsibility of underwriters
or other independent market makers. Whether the responsibility for
supporting liquidity and valuation has shifted to the issuer or not,
the Forum will support analyses based on the assumption that
Walgreen's management is responsible only for developing the company's
long term enterprise value and for explaining that to its
Alternative research sources
On the subject of analytical standards, some of you have observed that
nearly all the academic and professional research reports listed in
Buyback Policy” section of this program’s website present
skeptical views of long term benefits.
We have in fact been trying to identify sources of alternative views,
and any suggestions will be welcomed.
Inviting your continuing comments, I look forward to reporting the
company’s response early next week.
GL – November 14, 2014
Chairman, The Shareholder Forum
575 Madison Avenue, New York, New York 10022