When Tribune Co. announced a $2 billion stock buyback, it joined the ranks of media companies spending billions of dollars to use the technique to try and boost their share prices.
For all the spending, though, the buyers' stock prices have barely moved. The Tribune buyback is immense for a company its size; the newspaper publisher and broadcaster plans to repurchase 25% of all of the company's outstanding shares, a dramatic shrink.
“We believe Tribune's current stock price does not reflect the value of the company or the potential we have for creating shareholder value,” Tribune CEO Dennis FitzSimons told investors in a conference call.
Tribune executives have watched the company's stock get hammered 50% by management missteps and investors' distaste for its two core business sectors, newspapers and broadcasting (which accounts for 27% of annual revenues.) The stock is so low that the company is becoming a possible attraction for a corporate raider.
While a buyback takes shares out of play and loads the company with debt, it may not do much for a company's share price. A quick review of securities filings shows that Time Warner has spent $8 billion buying back its own shares in the past two years and plans to spend $20 billion by the end of next year. Comcast has spent $3.7 billion and plans to go to $5 billion. Clear Channel has spend $3.8 billion. EchoStar has spent $1.5 billion on buybacks and a special dividend.
So how have their stocks done over the past year? Time Warner's flat; Comcast is up around 7% (after dropping 10%); Clear Channel's up around 5%; EchoStar's up 3%.
Only Disney, with a $1 billion-plus buyback budget, has much to brag about—but not too much. Disney's stock ticked up around 10%.
The arithmetic makes a certain amount of sense. Shrink the number of shares outstanding, and future earnings per each of the remaining shares goes up. That should help increase the share price. But borrowing to finance the buyback—as Tribune plans to do—costs money, which dampens the effects.
The bottom line: If Tribune were a vibrant company, a big stock buyback would amplify the effects of healthy assets. But the newspaper and TV station businesses are far from vibrant. Maybe the only stock buyback that might work is a complete buyout.