Reuters' share repurchase: Stepping off a pile of cash

In 1993, Reuters, the international news and financial information group in the UK, spent £350 million in buying back its own shares, the largest repurchase operation in Britain since GEC's giant share buy-back in the mid-1980s. The cash distribution was deemed successful: shareholders over-tendered nearly seven times, the share price immediately went higher and the financial press was approving. Distributions by corporations to their shareholders in the form of share buy-backs are much more common and familiar an aspect of corporate finance in the US than in the UK. Share repurchase can be used as an alternative to cash distribution by dividend. This case study examines theoretical and practical aspects of this innovative financial manoeuvre in the UK.

The HSBC holdings/Midland bank takeover part two: Financial offer, valuation and stock market reaction

In Part Two of this Case Study, Paul Stonham focuses on HSBC Holdings' acquisition offer for Midland Bank. It involves the valuation of HSBC's and Lloyds Bank's offers and theoretical questions of the valuation of target companies' shares under a paper exchange. Valuation is made of the successfully-achieved HSBC/Midland enlarged group and estimates made of shareholder value before and after the takeover as well as for Lloyds Bank pre- and post-theoretical takeover. Dilution of earnings and transfer of shareholder value as a result of the takeover are interesting aspects and an evaluation is made. Finally, the reaction of the stock market to the takeover terms is interesting and provides the basis of comparison with similar large-scale acquisitions and their effect on stock market behaviour.

A Game Plan for Share Repurchases

Corporate share repurchases grew strongly as a popular means of returning cash to shareholders first in the US, then the UK, and later in the 1990s, in Continental European countries. Only in 1999 did the high rate of growth decline. This article documents the repurchase cycle and examines reasons given by corporates for undertaking repurchases which are then weighed against the evidence in practice. Several caveats can be issued against repurchases which diminish or reverse the positive valuation effects. In addition, alternative methods used in practice to implement repurchases are examined, and further measures which can enhance the effectiveness of repurchases are reviewed. The article concludes with a checklist or 'Game Plan' for a firm wishing to maximise financial value-added as well as strategic advantage from using the techniqueShare repurchases Valuation Financial strategy Dividend policy Cash distributions Derivatives

Too close to the hedge: the case of long term capital management LP: Part one: hedge fund analytics

In September 1998, the well-known US hedge fund, Long Term Capital Management (LTCM) announced it had lost 44 per cent ($2.1 billion) of its investors' money in August alone, and more than 52 per cent from the beginning of the year. This shock caused the Federal Reserve System to organise a bail-out by banks and investment houses to save the fund from liquidation and to prevent follow-on damage to US financial markets. Part One of this Case Study briefly reviews the loss of value by LTCM and the damage caused to investors and creditors. LTCM is placed in context as the Case looks at the nature of hedge funds in the investment business in general -- their structure, regulatory position, trading strategies and risk/return profiles. Hedge fund investment (sometimes called 'skill-based investment strategies') is examined to see how compatible it is with traditional theoretical models of investment -- notably modern portfolio theory and the capital asset pricing model. As far as hedge funds are concerned, traditional theory is deficient in several respects. Skill-strategy investment managers claim to be able to produce superior absolute returns, in most cases at lower risk, to traditional long-only mutual funds. Hedge funds, although varying widely in their trading styles, are usually characterised by short selling and leverage. LTCM shares these characteristics which provide some of the background against which the imminent collapse of the fund can be assessed.

BP Amoco: integrating competitive and financial strategy. Part one: strategic planning in the oil industry

After considering the economic state of the oil industry, particularly its structure and competition, Part One of this Case Study looks at BP Amoco's competitive planning in the last ten years within a framework of shareholder value developed by Thakor, DeGraff and Quinn, the 'strategic value propositions quadrant'. BP Amoco's strategy fits this model well in most important respects: focus on efficiency/control and market awareness and less attention to individual capability and technical innovation. Always focusing on shareholder value in this period, the company rebalanced from an emphasis on costs reduction in the early 90s towards growth and market awareness at the end of the decade. The role of acquisitions is explored in 1998-2000.BP Amoco Oil industry Shareholder value Financial strategy Competitive strategy

The HSBC Holdings/Midland Bank takeover : Part one: Strategy, tactics and logic

In 1992, the Hong Kong and Shanghai Banking Corporation successfully took over Midland Bank PLC following a non-hostile bid. It also represented the culmination of a long-term strategy on the part of HSBC Holdings. The result was the creation of the second largest non-Japanese bank in the world and the largest in the UK, measured by 1992 market capitalisation. However, the bid was strongly contested by Lloyds Bank in a counter-bid in the Spring of 1992.