Q: IMO Recently completed a $1.5 Billion Substantial Issuer Bid,(Fancy name for share repurchase)buying roughly 19 million shares at $78.50.Can you explain to me other than improving their EPS and not having to $38 million in dividends a year going forward how this is good stewardship of $1.5 Billion and can you tell me question number 2-What happens to these shares are they simply “retired”so in other they just vanish from circulation never to be seen again and $1.5 Billion also retired. Thanks and Merry Christmas
5i Research Answer:
Yes; the $1.5B goes into the tendering shareholders' pockets, and the tendered shares are retired and cancelled. The end result is fewer shares outstanding and less cash on the books. With fewer shares, PER SHARE earnings leverage increases. In other words, each shareholder remaining now owns more of the company than they did before the bid. If EPS rises, valuation should follow. IMO was, essentially, saying it had too much capital, and thought its shares were a better buy than acquisitions it may or may not have looked at.