Stocks and Funds
Some share repurchases get Warren Buffett’s seal of approval. But the great investor is on the wrong track. Buybacks are really dividends by another name. The price doesn’t matter. Besides, the practice is unfair to some shareholders and to governments. The world would be better without them.
Grupo Aval wants to raise $1.1 bln on the NYSE. It earns better returns than most U.S. banks and operates in Latin America’s fastest-growing economy. But dual-class shares give its founder near-total control. And the lender’s using the proceeds to boost capital, sapping earnings.
The UK phone retailer has failed. Owner BC Partners is money-good thanks to a dividend funded with debt. Gearing caused Phones 4u to go down, says supplier Vodafone. The reality is more complex: the company was a poor target for heavy borrowing, but had bigger issues too.
John McFarlane has run a big lender and even has some investment banking experience. He also knows something about leadership change, having stepped in to run Aviva after the removal of its CEO. That equips him well to lead the needed dispassionate review of Barclays’ board.
Bids and Buyouts
A $13.5 bln deal for U.S. rival TRW creates one of the largest global suppliers. There’s strategic logic but no aggressive premium. While TRW’s share price has surged over the last 18 months, competing bids also went missing. ZF Friedrichshafen sensibly exploited the opportunity.
Cognizant may have good reasons for buying healthcare IT provider TriZetto for $2.7 bln. But promises of revenue synergies mixed with jargon should provoke investor skepticism, not an immediate 2 pct pop in the buyer’s shares. It’s a symptom of simmering M&A exuberance.
Buying Heineken could create more value for SABMiller investors than the widely anticipated endgame of a sale to Anheuser-Busch InBev. It’s a shame the Heineken family said no. With partners Castel and Molson Coors unlikely to trade, SAB lacks good alternatives.
Heineken calls SABMiller’s bid approach “non-actionable.” Competition problems do exist in Europe, India, Africa and elsewhere. But these could be fixed and a $130 bln tie-up would create an emerging markets titan. The rebuff suggests family control is the real sticking point.
Money and Markets
Calpers, the $300 bln pension manager, is offloading its $4 bln of hedge funds. Too many in the 2-and-20 crowd look like stock pickers yet still present liquidity risks and, lately, low returns. Endowments are different, but for retirement funds Calpers could be setting a trend.
President Ollanta Humala abruptly replaced his finance minister amid an economic slowdown. Commodities prices, overspending, the currency and foreign investment are not obvious problems. The political shake-up may buy enough time till Humala’s pragmatic policies start to work.
Prosecutors have accused the fallen energy tycoon of insider trading and are trying to freeze his assets. A conviction would be a first. The case could just as easily expose the country’s legal shortcomings. That presents an opportunity to make good use of the Batista fiasco.
The prospect of Fed tightening last year provoked a “taper tantrum.” Now investors look ill-prepared for rate increases. They’ll run for shelter whenever the U.S. central bank gives the sign. But money has been flowing to ever more illiquid markets. There could be trouble.