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Where a company decides to
reduce the number of ordinary shares it has in issue, or increase them,
there are many concerns for existing shareholders.
Share buy-backs can be
used as an alternative method to dividends to return surplus cash to
shareholders, but the taxation position of private shareholders may often be
different to that of institutions, and hence there are major concerns when
this takes place. A note was published in 2002 on this issue - see
Share_Buy_Backs. See also
Share_BuyBacks_Article_2001
and
Share_BuyBacks_1998. In 2006, UKSA
mounted two campaigns in companies where we thought the share buy-back
policies were inappropriate: see Rank and
Surfcontrol where the arguments are explored
in some depth. Share buy-backs generally seemed to be becoming more
fashionable but possibly less justifiable. In September 2006
Morgan Stanley predicted that share buy-backs would hit £30bn
in the UK that year, up from £25bn in 2005. They were only around £7bn in
2003. But following UKSA's campaigns and articles in such publications as
the Financial Times, some people seemed to be reconsidering their merit. For
example consider the comments of Peter Voser, CFO of Shell in February 2007
(they repurchased £8bn of shares in 2006): "I'm philosophically opposed
to buy-backs. I think the money is better used for organic growth, and I
also don't think the buy-back programme has delivered the sort of share
price appreciation some were hoping for."
Rights issues, or any
other way of issuing more equity such as placings or the payment of
dividends in the form of new shares can also give rise to many concerns and
need to be closely monitored. Apart from the question of shareholder
dilution, if the issue is at a substantial discount, or is not offered to
all shareholders then smaller shareholders rights may be prejudiced. For
submissions by UKSA on the subject of rights issues and the associated
subject of underwriting, see:
Rights_Briefing_1996
Rights_Response_to_OFT_1996
Underwriting_MMC_Response_1998
Underwriting_MMC_FollowUp_1998
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