Use It or Lose It

Dennis McCarthy – (213) 222-8260 – dennis@mbsecurities.com – 

I think we’re beginning to see a change in investor attitude about companies holding substantial cash.

Over the last several years, as we came out of the great recession, many companies accumulated cash, often in amounts well in excess of any foreseeable need.

For a time, investors’ reacted with relief that companies held cash in order to respond to unpredictable economic events and capital markets.

Now, investors seem less worried about companies facing unpredictable events and are more concerned about the return on their investments.

These investors, recognizing that the major economies of the developed world have slowed dramatically, are worried about the implications for earnings growth and stock price appreciation within their portfolios.

 We’re starting to see investors press companies to use their cash to grow or return the cash to investors through dividends or stock buybacks. 

The recent battle between Apple and Greenlight Capital has been cited as an example of this shift in investor sentiment. 

Without getting into the details here, this battle seems more about how to return capital rather than whether to return capital. 

Apple’s public filings (link) clearly indicate its position that it has extra cash and intends to return capital.  

Apple appears to me to be more forthright about its situation than many or most other public companies. 

So, I’ll be watching this issue play out.

How fast will investor sentiment change on companies holding cash hoards?

How much influence will investors have on companies’ use of cash?

How will companies use their cash?  We’ve already seen more stock buybacks. Will we see a surge in M&A?  Will we see an increase in the creation of dividend preferred stock?

This is an issue with significant capital market implications.

As always, please contact me to help your company with any capital market transaction.