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đ Everyone wants their shares back
In todayâs email:
How rich is a billionaire?
Microsoftâs getting mixed signals
Why youâll never win at the casino
Greggs just wants to sell you goujons
Companies keep buying back their shares
Find out where youâd end up if you dug a hole through the earth
⌠and more!
If you take just one thing from this emailâŚ
Share buybacks are when companies buy back their shares from shareholders. It puts money in the hands of shareholders, so youâd think thatâd make them happy. But shareholders might believe that their shares would be more valuable in the future if the company actually spent the money on itself (e.g. through investing in new product development). So, even though they get money, share buybacks might leave them annoyed.
EDITOR'S RAMBLE đŁ
Hope youâre all well, LittleLawyers!
Right now, Iâm writing this newsletter from the beautiful city of Bergamo, Italy as Iâm here for a friendâs wedding.
Hereâs a pic đď¸
- Idin
FEATURED REPORT đ°
đ Everyone wants their shares back
Whatâs going on here?
Thereâs been a rise in share buybacks recently and company shareholders are getting more and more annoyed with it all. They think buybacks are making executives richer while giving little benefit to shareholders. Regulators are starting to pay attention too, with President Biden even slapping a 1% tax on US buybacks (and heâs proposed to raise it to 4%).
What is a share buyback?
Think of it as a (usually public) company investing in itself by buying its own shares from existing shareholders. By doing this, the company reduces the number of shares available to the public.
The goal behind a share buyback could be to:
đ show confidence in the company's performance,
đ boost the companyâs share price, or
đ¸ give money to shareholders.
If shareholders are getting money, whatâs their issue with it?
Shareholders are unhappy because they think these buybacks aim to quickly increase the value of the shares (fewer shares means a higher value per share) so that executives in these companies can hit their targets and pocket a fat bonus.
Euan Munro, the chief executive of Newton Investment Management (a London-based investment firm) said:
âUsed badly, [buybacks] can be used to manipulate [earnings per share] numbers upwards to meet medium-term management incentive targets at the expense of investments that might be important to a companyâs long- term health.â
If this is true, the money being spent on buybacks is arguably being taken away from long-term investments that the company could be making (e.g. a new factory, new research and innovation or more staff) which could be better for its overall health - also negatively impacting the shareholder.
If they wanted to, companies can choose to give money back to shareholders through a dividend without buying back shares.
Is this happening in the UK?
Itâs happening all over the world, including in the UK and Europe (but itâs been more common in the US).
Between 2012 and 2022, buybacks by the biggest UK-listed companies more than tripled from $22bn to $70bn.
Youâll see the line below representing the UK, showing an upward trend since the end of 2020.
Whoâs been doing share buybacks?
It might be easier to list who hasnât been doing them.
Companies that bought back their own shares include:
Iâm sure there are even more big ones that Iâve missed.
Why should law firms care?
Helping with share buybacks
The rise in share buybacks offer a big opportunity for âequity capital marketsâ (sometimes called âcapital marketsâ or âECMâ) teams at commercial law firms.
These are corporate lawyers who specialise in dealing with public markets and would be called on in any share buyback to ensure that theyâre conducted properly.
This means theyâll help with:
ensuring the companyâs articles (its internal rulebook) allows it to buy back its shares,
providing guidance on funding options,
giving notices to and getting approvals from shareholders,
structuring the buyback transaction,
ensuring compliance with relevant laws and regulations, and
making the relevant filings at Companies House (the UK company register).
The top ranked firms for this type of work in the UK include the Magic Circle firms, Latham & Watkins, White & Case, Ashurst and Herbert Smith Freehills.
Helping when shareholders are angry
Shareholders could bring a dispute against a company because theyâre not happy with the companyâs decision to buy back shares. Lawyers are needed to help here, representing either the company or shareholders.
Lawyers can negotiate settlements between the company and the shareholders involved to reach an outcome.
If that doesnât work, and shareholders bring a court claim, lawyers work to represent the shareholder or the company in these legal actions.
A BIT OF FUN đ
IN OTHER NEWS đ
đľď¸ The UK government has shared new updates on the National Security and Investment Act 2021 (NSIA). The Act (which came into force a couple years ago) allows the government to block transactions which could harm the UKâs national security. Dentons produced a useful summary of the guidance. As itâs still fairly new, lawyers are urging the government to give more guidance so they understand when the Act might be used to block their deals. â If you want a newsletter focused on NSIA, explaining how it works and stuff, reply to this email to let me know.
đŚ Microsoft has received the green light from European regulators to go ahead with its purchase of Activision Blizzard while the UK has blocked the deal. While the EU approval is a significant milestone, Microsoft still needs approval from regulatory bodies in the UK and the US before the acquisition can be finalised.
đ Greggs, the famous bakery chain, is going to court to challenge a decision by a London council that stopped them selling chicken goujons all day and night. They opened a fancy store in Leicester Square, selling pastries and sausage rolls 24/7, but the catch is that they can't sell 'hot food' between 11 pm and 5 am without a proper license. The council rejected their application, worried about more people flocking to the area, but Greggs can still appeal.
AROUND THE WEB đ
đ˛ Smart: If youâve ever thought youâve been lucky at the casino, this is why youâre wrong. This interactive âmodelâ demonstrates the laws of large numbers showing how, over a long period of time, the house always wins.
đ¤ Wealth: This website puts wealth into perspective so you can see just how rich a billionaire is (brace yourself â itâs actually crazy).
đď¸ Geography: Ever wondered where youâll end up if you dug a hole through the earth from where youâre standing⌠No? Well, you can find out anyway (from my experience on this site, youâll probably end up in water somewhere).
đ§ Bored: Move over Wordle â thereâs a new word game in town. Pyramid Scheme is a game where you have to find the correct word combo to fill the pyramid.
Credit: r/internetisbeautiful
STUFF THAT MIGHT HELP YOU đ
đĽ Community for aspiring lawyers: If you're struggling with motivation for law firm applications, check out FlowHuddle - a supportive online community, hosting remote co-working sessions, expert office hours and in-person meet-ups.
đCommercial awareness journal: Check out this journal that we've created alongside the team from The Lawyer Spot. It gives your a simple three-step structure to improve your commercial awareness in a high-quality physical notebook.
đŁ Advertise with us: If you're looking to reach an engaged audience of over 6,700 aspiring lawyers, drop us an email.
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