Zeev's Turnips Patch-No Politics (ZEEV)

[Zeev Hed]

MRK was buying back their shares mostly between $65 to $85 per share, and 20% of the buyback was borrowed money (they had no debt now they have $5 B in debt). I think that MRK could have used that cash to buy nascent bioteks to fill their pipeline etc. They spent about $10/share buying back their shares, their book value would have been $17, not $7 if they did not keep buying back at multiples of book. No, when a company buys back its share at a premium to book, it means they have run out of good ideas that will produce internal rates of return that are superior to their own. That was a fashion that made sense when dividends were taxed, it no longer does IMTO. My recent semi bearishness on TTC is a direct result of their recent buy back at $60/share, and that was only a little north of 3 times book. If you have excess cash, either pay it out, or use it efficiently in the business.

Look at DELL, they spent $6.5 B buying back their shares in the last 3 years or so, guess what their net tangibles is, also $6.3 B, and they spent all their cumulative earnings on buying back shares, well, if it was to counter options, then in all its 20 Years of great success in distributing PC's, DELL has not added a penny to their coffers to the money they raised from the public (about $6.8 B), that is a sham, not a company creating wealth.