), the company that makes Blackberries,
announced a weak quarter Thursday
, and then announced they were initiating a stock buyback. I don't
like stock buybacks and I figured this was an opportunity to
A decade ago, I was Chairman of the Board of a public company
. It is still a public company but I have not been involved with
the company for eight or nine years.
The company raised a huge amount of money in its IPO in 1999 and
then after the market broke in early 2000, the stock was trading
below its cash value. We talked about this at the board and decided
to do a stock buyback.
For those who don't know what a stock buyback is, it is when a
public company announces that they will be going into the market
and start purchasing their own stock. When they purchase their
stock, they typically retire it so that the number of shares
outstanding goes down.
Stock buybacks are very popular with some investors as a way for
a company to transfer value from the company back to the
shareholders. It is like a dividend, except it is taxed as a
capital gain, not ordinary income.
I don't remember the exact details of the buyback at
TheStreet.com but we started buying the stock and it kept going
down. We kept buying it. But we were losing money on each buyback
because we were overpaying for our own stock as it kept going
I didn't understand what was going on. We had more cash than it
would take to buy back every share in the company and yet the stock
kept going down. We eventually reduced the number of shares
outstanding by a pretty significant number. I don't remember what
it was but it could have been as high as 25% of all the shares that
were outstanding before we started the buyback.
Eventually the market came back and the stock rose. And the
company started making money and its reported earnings per share
were higher as a result.
But I don't view that stock buyback as successful. It didn't
fundamentally change the company in any way. We just gave back a
lot of cash to the investors.
This was all happening in 2000 and 2001. If I think about what
we could have done with $25mm or more of cash in 2000 and 2001 to
transform that company, there are so many obvious ideas in
hindsight. We could have invested in new lines of business. We
could have bought a bunch of companies. We could have made a number
of moves that would have fundamentally changed the company. And we
had a lot more cash than $25mm. But we let the cash sit in the bank
and worse we gave a lot of it back to investors in a manner that
did not do much for the company.
So if you go back to the reason that the stock kept going down
as we were buying it back, I think I understand why now. With our
stock buyback we were signaling to the market that we had no good
ideas about how to spend that cash. We were signaling that we
didn't see much of a future in our business. And smart investors
bet against those kinds of companies, managements, and boards.
So when I saw the headline Friday morning that RIM was doing a
buyback, I was saddened. I've been a Blackberry user since 1997 or
1998. RIM has been a great company that has driven so much
innovation in the past fifteen years that has made my life better
and the lives of many others better. I have to believe that if they
got aggressive, they could find uses for all of that cash they are
sitting on. I wish they would do that instead of buying back their
Great Day for Goldman