Magazine article Global Finance

When It Makes Sense to Buy Yourself

Magazine article Global Finance

When It Makes Sense to Buy Yourself

Article excerpt

What can a company do when it has a huge cash hoard and no clear way to put it to work? The obvious answer is a stock buyback. Reuters, the big UK news and electronic information company, in 1993 was the first of a now long list of British companies to return surplus cash to investors through a share repurchase. But it's now stymied by a change in UK tax law. So Reuters finance director Rob Rowley, advised by corporate tax guru William Ziff of SBC Warburg Dillon Read, is trying a different tactic: Reuters will acquire itself-and include cash as well as new shares in the purchase price.

The business is a money machine. Reuters' return on equity is a startling 56%, and return on capital employedthe preferred yardstick among media analysts-is amazingly close to 100%. Reuters has had no debt for the past 16 years. The cash, now L1.5 billion ($2.4 billion), just keeps piling up and producing a drag on earnings, because the cash earns a mere 4% after inflation. That, plus increasing competition and slower growth in Asia, has caused Reuters shares to lag the UK stock market by almost 20% in the past year.

What about acquisitions? "They've been spending 200-300 million per year on acquisitions, and that is not denting cash flow," says Anthony de Larrinaga, media analyst at Panmure Gordon, a London brokerage firm. Big acquisitions seem to be out of the question: Reuters is so dominant in many areas of financial information that a buyout of one of its main competitors would inevitably invite antitrust scrutiny. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.