Walgreen Stock Buybacks: Issues to Be Considered by Investors
Walgreen is being asked to provide information supporting investor
analyses of the effects of corporate stock buybacks, specifically in
the context of the company’s proposed merger and notes offerings to
create Walgreens Boots Alliance.[*] The
following three issues have been defined for consideration:
1. |
Market pricing influence of purchases
– Since announced intentions as well as actual purchasing activity
can be expected to stimulate higher trading prices for the
company’s stock and possibly lower prices for debt securities,
investors will want to understand as much as possible about
company policies for executing and reporting buybacks.
Relevant period:
from the time of announcement until completion of buyback activity |
2. |
Allocations of earnings
– To calculate the “financial engineering” effects of dividing
current and projected earnings among a reduced number of shares,
analysts will need to include reasonable estimates of buyback
prices as well as changes in other capital costs.
Relevant period:
projections of 3 to 5 years, assuming future issuance and
purchasing of stock will gradually diminish the effects of current
buybacks |
3. |
Corporate adaptability
– Projections of earnings must include assumptions about the
effects of reduced equity capital on the company’s ability to
develop new business opportunities and respond to threats.
Relevant period:
extending to years in which earnings would be significantly
influenced by business operations and market conditions that have
not yet been identified |
The importance of each of these issues will depend on specific
investor interests, particularly in relation to the timing of any
anticipated buying, selling or portfolio valuation objectives. For
example, an investor expecting to sell Walgreen stock within a year or
when a price target is reached might be concerned primarily with the
first defined issue concerning the market pricing influence of
purchases. An indexed fund that expects to own the stock for decades
or a buyer of Walgreen’s newly issued notes due in 2044, however,
might focus attention primarily on the third issue concerning
corporate adaptability.
Forum participants are invited to comment on the analysis of these
issues, and on the information that Walgreen might reasonably provide
to support sound investor decisions.
The company’s response will be reported early next week.
GL – November 12, 2014
Gary Lutin
Chairman, The Shareholder Forum
575 Madison Avenue, New York, New York 10022
Tel: 212-605-0335
Email:
gl@shareholderforum.com
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