The manufacturer of industrial gases has been generating high profits and cash flows for years, has a lot of liquidity – and hardly any opportunities to invest it sensibly.
(Photo: dpa)
Buying back your own shares in an impending crisis? First of all, that doesn’t work. Companies like BASF, which may have to shut down production at their main site in the winter because there is not enough gas flowing, are better off holding onto their money instead of letting it flow out of the company.
But at BASF, three billion euros will be spent on dividends this year, another three billion on share buybacks this year and next – and probably another three billion euros for the distribution next spring.
It is also true that oil companies, which are currently earning a lot from rising prices, would be better off investing more in climate-friendly future and successor technologies instead of buying their own shares.
In view of climate change and the raw material that cannot be reproduced at will, the industry has to reinvent itself to a large extent. This requires a lot of money, which is now available thanks to rising world market prices from a technology that is actually being phased out.
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But the oil multinationals succumb to the temptations of the capital markets. The prices are boosted by the shares purchased and canceled by the companies: firstly because the supply is becoming scarcer, secondly because future dividends and profits are distributed among fewer shares.
Still, share buybacks aren’t always an expression of lack of imagination. Anyone who buys back their own shares like Linde is doing more right than wrong. The manufacturer of industrial gases has been generating high profits and cash flows for years, has a lot of liquidity – and hardly any opportunities to invest it sensibly. In principle, the market is divided between only four competitors, worldwide, mind you.
Share buybacks appear to be the more appropriate means alongside dividends, instead of diluting profitability through less valuable investments. The principle applies here: the money is better off with the shareholders than with a company that is reaching the limits of its growth.
Bayer would probably have done well to buy its own shares instead of spending around 60 billion euros on Monsanto six years ago. Since then, the company and its shareholders would have been spared a lot of write-downs, provisions, losses, legal disputes and, above all, a loss of reputation.
Today Bayer is worth almost 60 billion euros on the stock market, a good 60 percent less than before the purchase of Monsanto. The group would probably be in a better position today, both financially and in terms of its market value, if the board of directors had done nothing else on behalf of its shareholders than to buy back its own shares.
More: Share buybacks at a record level: corporations drive their courses