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Re: Red Hat's $325 Million Buyback Plan Raises Stock Value

Sinister Midget wrote:

> On 2006-10-28, rwwff@xxxxxxxxx <rwwff@xxxxxxxxx> posted something
> concerning:
>> Larry Qualig wrote:
>>> Redhat is forced to spend its own money to sop up its worthless stock.
>> Well, for a company that has some excess cash, buying back stock and
>> debt can be a good way to improve the balance sheet.   And if you
>> suspect that your stock has just taken an artificial hit that will
>> dissipate, you should pounce while the timing is favorable.
> I think Message-ID Larry (MIDL) is trying to make a point. But it
> misses a nuance or two.
In financial matters perhaps I missed a "nuance" but you have managed to
miss the ENTIRE POINT. (read on)

> MS had to buy back some stock not long back. That was viewed as a
> sign of MS slipping.
No company 'has to' buyback shares.

> Now methinks MIDL is trying to claim a similar move by Redhat has a
> similar meaning. Or perhaps he's trying to pretend there's some sort of
> hypocrisy on the part of some.
The hypocrisy is how identical news (stock buyback) is portrayed as a
negative in one case and a positive in the other. A buyback is exactly
that.. a stock buyback. There is no difference. But do read on.

> However, Larry overlooks an important difference. In the case of MS it
> was a need to support their stock price, which was falling under the
> burden of competition. 
BZZZT. Wrong answer. But do read on.

> In the case of Redhat, it followed the FUD of 
> someone (Ellison) deliberately talking their stock price downward. The
> first was a defensive move brought on by market forces. 
Wrong again. (Anytime you want to go "one-on-one" with me when it comes to
financial terms and stock market implications I more than welcome it.) 

++++ Correct answer ++++

For starters you have absolutely NO CLUE what the purpose of a stock buyback
program is. And neither does Roy or any of the other clueless idiots who
claim that it's to raise the stock price. (Hint - It's not to support the
stock price.) That's my point with the "MSFT buyback" and the "RHAT
buyback" posts/thread. People making these posts are clueless.

As a matter of fact, it's illegal for a company to manipulate it's stock
price (ie - They can't buy or sell shares or engage in other behavior in
order to manipulate or "support" the stock price.) That's why there are
laws in place that limit the amount of shares that a company can buy within
a given amount of time. These laws prevent a company from artificially
boosting the share price.

Example - RHAT is buying back up to $325 million in stock over the next
year. On the average day over $135 million dollars of RHAT stock gets
traded. Do the math and you'll see that the buy-back is LESS than 1% of the
shares being traded. Not enough to have a material effect on the stock

Some applies for Microsoft. Their stock buyback is much larger but on the
average day MSFT does about $1.6 Billion in volume. Microsoft's stock
buyback lasts between now and the year 2012. Again, do the math.... the
effect of this buyback is less than 1% of the shares being traded. Not
enough to have a material effect on the stock price.

The primary reason that companies buy there own shares is because they feel
that the shares are undervalued. Management believes that the shares do not
accurately reflect the fundamental value of the company so it decides to
invest in itself. 

Hint - Other companies who've announced stock-buy backs are Exxon-Mobil,
Valero, Allstate, Pfizer, Aetna, Chevron, etc. Many of these companies are
trading near 52-week highs so don't be fooled into believing that only
poorly performing stocks issue buyback programs.

> The second was 
> a defensive move needed to counter what was brought on by a FUDmeister
> of Stevie Blammer proportions.
> MIDL should probably stick with exposing all of us linux-using
> nymshifters instead of trying to think too hard. That would get him
> into less trouble than most of his attempts at trolling and FUDdery.

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