I can understand some of your points but struggling to see the hate for the buyback in light of the things you mention. I genuinely would like to understand why it is such a terrible idea and what alternative capital management strategy you would regard as a better option for RAC... so can I flip this on its head and ask you a question?
If a company:
- is in the fortuitous situation of having secured its funding needs for the goals it has set out to achieve for a reasonable period of time ahead, and,
- has some capital in addition to that which it does not have an immediate short-medium term use for, and,
- is operating in an environment where that capital risks being eroded by inflation at 5-10% per annum over the next few years, and,
- feels that the company share price has become totally disconnected (negatively) from the fundamentals of the business due to external factors outside of its control and in no way reflects their underlying value, and,
- has high confidence that the company's assets and execution ability will enable it to access additional capital in the future, if required, under more favourable terms than available at present (e.g. CR at a higher share price, partnership or other), then:
Wouldn't a share buyback be one of the things any company in this situation should be considering as part of prudent management of shareholder funds? If not, why not? What other alternatives would you suggest that are a better strategy at this point? (OK, that's 3 questions...)
RAC could look at starting more trials, developing more drugs, or other ways to spend more money faster but that would not necessarily be productive, or worse could be biting off more than they could chew and put existing plans at risk. They could look to sit on the extra cash in case they need it in 3 years, but by then it may be worth only 70-85% of what it is now. They could play it super safe and dilute the hell out of everyone and raise another 10 years of cash now just in case the share price continues to drop and all programs are a failure, but at least they know they can keep the company running and pay their salaries until they retire.
I'm sure RAC would rather have a much higher share price well above the last CR price, and not be needing to consider a buyback. But things don't always go to plan and sometimes you need to adapt to unforeseen circumstances and just have to play the shitty hand you are dealt. This way they get to take at least some advantage of the situation the market has presented and reduce the impact of previous dilution, benefiting all remaining shareholders with an increased level of ownership in the company.
There is of course the risk with the buyback that we either need to raise capital under less favourable terms in the future and those buyback funds would have been better being saved just in case, and/or that the share price continues to drop regardless and the company ends up over-paying for buyback shares. But even then at best it would only be delaying a further CR, not preventing it, and RAC would likely have much bigger problems on its hands at that point as it would mean that things had not gone as intended regarding Zantrene and it's performance in the upcoming trials.
So there's no guarantee that history will view the buyback as a success, but without the benefit of hindsight at this point I fail to see why you think that is such a bad idea that we should "feel like burning their office down". To me it's like we should feel like doing that if they hadn't been considering a buyback.
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