In today’s email:

• How rich is a billionaire?

• Microsoft’s getting mixed signals

• Why you’ll never win at the casino

• Greggs just wants to sell you goujons

• Companies keep buying back their shares

• Find out where you’d end up if you dug a hole through the earth

… and more!

EDITOR'S RAMBLE 🗣

Hope you’re all well, LittleLawyers!

Right now, I’m writing this newsletter from the beautiful city of Bergamo, Italy as I’m here for a friend’s wedding.

Here’s a pic 👇️ 

- Idin

FEATURED REPORT 📰

🔁 Everyone wants their shares back

What’s going on here?

There’s 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 he’s 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:

• 🚀 show confidence in the company's performance,

• 📈 boost the company’s share price, or

• 💸 give money to shareholders.

If shareholders are getting money, what’s 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:

“Used 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 company’s long- term health.”

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?

It’s happening all over the world, including in the UK and Europe (but it’s been more common in the US).

Between 2012 and 2022, buybacks by the biggest UK-listed companies more than tripled from $22bn to $70bn.

You’ll see the line below representing the UK, showing an upward trend since the end of 2020.

Who’s been doing share buybacks?

It might be easier to list who hasn’t been doing them.

Companies that bought back their own shares include:

• HSBC

• Apple 

• Britvic

• Airbnb

• Just Eat

• Bank of Ireland

• Alphabet (Google’s parent company)

• a bunch of Oil companies like Shell and BP…

I’m sure there are even more big ones that I’ve missed.

Why should law firms care?

Helping with share buybacks

The rise in share buybacks offer a big opportunity for ‘equity capital markets’ (sometimes called ‘capital markets’ or ‘ECM’) 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 they’re conducted properly.

This means they’ll help with:

• ensuring the company’s 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 they’re not happy with the company’s 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 doesn’t work, and shareholders bring a court claim, lawyers work to represent the shareholder or the company in these legal actions.

A BIT OF FUN 😄

IN OTHER NEWS 🗞

• 🕵️ 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 UK’s national security. Dentons produced a useful summary of the guidance. As it’s 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. — If you want a newsletter focused on NSIA, explaining how it works and stuff, reply to this email to let me know.

• 🚦 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.

• 🍗 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 🌐

• 🎲 Smart: If you’ve ever thought you’ve been lucky at the casino, this is why you’re wrong. This interactive ‘model’ demonstrates the laws of large numbers showing how, over a long period of time, the house always wins.

• 🤑 Wealth: This website puts wealth into perspective so you can see just how rich a billionaire is (brace yourself — it’s actually crazy).

• 🌍️ Geography: Ever wondered where you’ll end up if you dug a hole through the earth from where you’re standing… No? Well, you can find out anyway (from my experience on this site, you’ll probably end up in water somewhere).

• 🧠 Bored: Move over Wordle — there’s 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 👌

• 👥 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.

• 📕Commercial 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.

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