Statement by Commissioner Peirce on Share Repurchase Disclosure Modernization

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Michael Seigne
Posted Tuesday, July 18, 2023 at 4:17 pm | Permalink
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Commissioner Peirce has many good points, however I suggest that one specific point he makes is flawed. He mentions, and he is right, that the reasonable investor will be buried in information. The avalanche of trivial information is not a necessary detail that a reasonable investor should be spending their valuable time on.
However, there is a lot of value to the reasonable investor in someone spending time burying themselves in those very details to ensure that that very same investor’s best interests are being protected. As we all know the “devil” is in those details.
These details of the daily repurchase activity should not, in my opinion, be revealed in “real-time”, in order to protect the longer term shareholders interests. However I would argue that there is tremendous value to all shareholders, the long term holders and those that sell into the company’s buy-back, for the daily repurchase details to be made public.
Management have different reasons for deciding that the best use of a companies cash is to buy-back shares. Those reasons can include those that relate to the current share price versus what they perceive to be “intrinsic value”, or they could be that management think a share buy-back is a more efficient, or more positive signalling mechanism to return excess cash to shareholders than a dividend. The point is that different decisions have very different objectives in terms of the implementation of that buy-back.
A “value” based decision is all about the current price of shares, whereas a “dividend like” decision is all about the efficient transfer of that cash back to the selling shareholder. The value to the shareholder of the daily repurchase activity being made transparent, is that someone can then analyse if that activity, the execution process, was actually designed and executed in their best interest.
These details are currently available in the UK and EU, and we can show you from these details that a significant portion of share buy-back implementation is not in the best interest of shareholders. A UK company recently split a capital return process into two equal parts, 50% returned via a special dividend and 50% via a share buy-back. The share buy-back execution process cost shareholders over 8% in lost value. This is very relevant to shareholder return. Apple Inc have executed over 20% of their share repurchase via execution products that are not in their shareholders best interests. This is no reflection Apple Inc, it is the process, that is the the problem. The SEC, by improving transparency to this process, will also bring fairness to our investors.