Reselling treasury shares at profit

2
Emeterio Sd. Perez

Emeterio Sd. Perez

IF you can’t beat them, join them.

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This is only a suggestion to the public who may have observed how some listed companies engage in trading their own shares and reselling them as treasury shares at significant, if not big, profits.

Some members of the investing public may have been duped into selling their holdings either to cut losses or to avoid being caught holding the so-called “empty bag.” Given the absence of a law against any excessive buyback, individual investors would not have any inkling what the majority or controlling stockholders plan to do with the piles of treasury shares in their portfolios.

Certainly, the individual investors who are never privy to anything going on inside the boardrooms would have no choice but to simply wait for disclosures from such companies to be posted on the website of the Philippine Stock Exchange. The only problem is that not everybody feels the need to even surf www.pse.com.ph to read the postings of listed companies.

Public as buyers of their own shares
When finally a company announces in a filing that it is reissuing or selling back treasury shares, public investors are surprised to find that they could be buying at a premium the same shares they had earlier sold back to the company.

Unless retired, treasury shares remain a form of asset of a company, which it can dispose of or unload with the approval of the board. Who would object to such unloading when the numbers game favors the majority?

How then could the public benefit from the majority rule?

The answer is simple: Join the war.

Yes, why not join the war, which the public would never win but could reap the benefit of fighting in the end. How?

Reselling at profit
Has anyone among the public seen a listed company sell back treasury shares at a loss? Try going over certain listed companies that had bought back and resold their treasury shares. It is easy to detect if the selling company made money from such deals. Simply go over their financial statements and decipher their additional paid-in capital (APIC). If, before the sale of treasury shares, they did not have APIC, then if follows that the seller has scored well in the share buyback.

A word of caution: The public should be aware of the “cost of treasury shares,” which would refer to the price paid by listed companies in buying back their own shares.

Why would it be suggested that “if you can’t fight them, join them?”

This is not an invitation for individual investors to compete with their own company in stock picking. It is, nevertheless, intended to make the public more aware of the market decision of the majority. If the company buys back its own shares, the public should start piling up their shares in that company and sell when the corporation reissues or resells treasury shares.

ICTI’s 8.043M treasury shares
Here is a stock to watch. Observe how International Container Terminal Services Inc. (ICTSI) has been reacquiring its own shares.

As of Sept. 9, it reported 8,043,381 treasury shares after buying back on Sept. 8 three transactions totaling 50,000 shares: 20,000 at P88 each; 20,000 at P88.05; 10,000 at P88.10.

As a result of the latest share buyback, the number of ICTSI’s outstanding shares dropped to 2,037,134,290, which tallies with the company’s posting on the PSE website.

The public can only speculate what ICTSI intends to do with its treasury shares. At Wednesday’s high of P89, the company’s 8,043,381 treasury shares had paper value of P751,860,909. Will ICTSI’s seven-man board, led by Chairman Enrique K. Razon Jr., decide to reissue them? If they do, the follow-up question would be, when would they resell them?

esdperez@gmail.com

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2 Comments

  1. The usual rationale for buying back company shares is that management feels that the stock is unjustly priced at the market. I usually watch out for this as it normally indicates confidence of insiders of the true value of their business. As Mr. Perez asked, “Who has seen a company buy and sell treasury shares at a loss?” One can join the war by buying those stocks being targetted for buybacks and then waiting it out. One group that has been buying back lots of its shares over the past few months is that of Lucio Co’s – Cosco and Puregold.

    This is not a surefire strategy though. I unloaded Cebu Pacific stocks with big losses a few years ago. From an IPO of 125 pesos, CEB share prices sank to as low as 48 despite massive company buybacks. This was during the period of rising oil prices. Hindi nakaya ng buybacks ang price hemorrhages. CEB is currently making a comeback, however, because of the depressed fuel prices.

  2. its a support for purpose of maintaining the mkt cap of the company, top ten billionaire in the ph!