CCME - You can argue that a dividend would not have been a good use of capital. But if you truly believe that the company has future cash earnings power that is worth $60.00 fair value, then there is no question that a buyback at $8.00 would have been more accretive and would have offered a better ROI than anything they are doing now or will ever do with the cash on their books. There is no acquisition they could have made that would have been better than to acquire more of themselves at $8.00, if in fact they can produce $3.00-$4.00 in cash per year in the future. No credible company that they could acquire in China sells for anything close to that multiple.
As for the margin of safety, wanting to have cash is understandable. But hoarding more than half of the market cap in cash (rather than buying back shares) just in case the world goes to hell? That's not normal.
To me, there are three possibilities. Either (1) they don't have confidence in the sustainability of their earnings going forward (re: potential future margin pressures and competition concerns that we discussed earlier), and therefore don't feel comfortable parting with the cash, (2) they still view CCME as a wholely-owned family business, rather than a publicly traded company, and they don't want to give away the cash to American investors, or (3) they just dropped the ball.
I'm willing to give them the benefit of the doubt and believe (3), but it's unquestionably a frustrating situation.
In fairness, another possibility is that they didn't want to drive up the price prior to having Starr purchase the Ou Wen Lin shares, but that excuse doesn't fly in my view--if they were trying to get Starr to buy Lin's shares, and didn't want to drive up the price, why did they announce the buyback in the first place? As far as share price movement is concerned, the announcement of a buyback does much more than the actual purchases.
Given the monster volumes at the time, they could have easily bought their 100K daily share limit from Sept. 15 - Sept. 30 without affecting the share price in drastic ways. Even better, they could have bought the shares from Ou Wen Lin directly at a price below market--i.e., give the sweet deal to shareholders rather than to Starr (who already got a sweet deal with the first offering).
Bottom line: there are all kinds of ways that they could have used the situation to build value for shareholders. They didn't do it.
