Those Stock Buybacks Were Brilliant

After wasting billions of dollars on stock buybacks, Bed Bath & Beyond has declared bankruptcy, and liquidation is likely to follow.

According to Allan Sloan, they have spent billions on stock buybacks

We all know that the Bed Bath & Beyond (BBBY) retail chain is in such big trouble that it’s likely to file for bankruptcy. But what most people don’t know is this: A major reason the company is so messed up is that when it comes to its own stock, the company violated a key rule of retailing — buy cheap.

Would you believe that Bed and Bath has spent more than $11.7 billion to buy back almost three quarters of its own stock? At an average cost about 15 times the stock’s current price? And that only a couple of months ago, when it was already in desperate financial shape, it kept buying back its shares? (For no rational reason, as far as I can tell.)

Well, you should believe it, because it’s all true.

According to its financial filings, Bed and Bath has spent $11.73 billion buying back its own stock since 2004 at an average cost of more than $44 a share. The stock’s price, when last I looked, was a smidge under $3.

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And as I said, the company kept buying back its own shares late last year even after it had become clear that its finances were deep in it.

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Wall Street loves stock buybacks, which it calls “returning money to shareholders.” By reducing the number of shares outstanding, buybacks can enhance a company’s stock price by raising its earnings per share. Higher earnings per share generally translate into a higher share price.

It  also has the effect of making the stock options that constitute much of the remuneration for senior executives much more valuable.

If you have a million options to buy company stock at $20, they are worthless at a share price of $19.99/share, and worth a million dollars at $21 a share.

More than anything else, stock buybacks are a form of looting by management, also known as control fraud.

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I was critical of the company’s buybacks in an article that I wrote for Yahoo Finance months ago.

Why am I writing about this again? Because Bed and Bath’s self-destructive buybacks make me deeply angry.

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But if Bed and Bath had spent a few hundred million dollars less buying back stock, it would have a lot more financial staying power. Staying power that it could sure use now.

America's business culture is fraudulent to its core, at least at the MBA level.

H/t Atrios.