"Inergy, L.P. (NRGY) announced that its Board of Directors has authorized the repurchase of up to $100 million in value of the Partnership’s outstanding common units from time to time through March 31, 2013, in open market transactions, including block purchases. "
That is a nice and confident move by management. Should help support unit price going forward.
So they are buying back shares for 3 times book value that makes sense? Seems that they could find an investment that could grow book and income rather than over paying for their shares, instant loss. What am I missing?
Since they say that all repurchased units will be "cancelled", it is likely just a tactic to manage share price, which often is a factor in access to credit, etc. Fewer shares -> less net quarterly distributions at the current dist rate -> easier to support that dist in the future. Also means any share holders "grow" their percentage ownership with each cancelled unit. Both aspects look like good management to bankers and any company insiders holding large blocks of units. Especially any holders of options (think employees with options packages as compensation) set at a strike price that is higher than current; they run the risk of having those expire worthless if the PPS doesn't recover.
Book value is simply liquidation value, estimated or claimed. It doesn't represent the ongoing "money making" aspects like existing contracts, repeat customers, market share, industry prospects and the like. So book value doesn't even pretend to value the future earnings potential of a company. Very few companies sell even or above their book value, although it sometimes happens. That again can be due to the accounting "techniques" allowed or required when estimating book value...