Does management have a target return-on-equity (ROE) in mind? Any plans to enter Texas? I live in Houston and think that the concept would go well here (IMHO). Would BOBE entertain franchiise arrangements outside of currently served markets?
thanks for you informative posting. One point to clarify -is there a sec or some kind of waiting period required before an announce ment to buy back co shares and the time that a co may proceed with such purchases?-Brian Hunt
This was a very interesting excercise for me as I hope it was for you guys It was entertaining and educatiional for me It
made me reevaluate the value of a buy back situation which some of my cos have done over the yrs If BOBE can do both then HOORAY
In otherwise cool calculated expansion along with a sensible buy back program to least satisfy stock options so the stock
doesnt get diluted too much Remember the DEC deal 180+stock buybacks and sacrificed growth stock ends up at 30 didnt do the
remaining shareholders any good Somebody got rich though!! One point of interest most intended buybacks never get completed I think
only about 75 % ever get done but bobe does do the unexpected and they just might do it I hope though at lower prices than 21
since I am here for the long run it doesnt bother me to have the stock dip a bit every now and then Thanks guys for the laughts!!
I'm almost sorry I asked the original question, but thanks to both you guys,I feellike I've gotten a bit of a free education.
The only thing I would ad to the arguement for the buy back of the partner's equity is the value of owning the whole pie.
I'm sure it's difficult, if not impossible, to put an accurate value on this "objective" asset, but many people would agree that
there are benefits to owning one business outright over owning
1/2 of one and equal value in another. For one thing the partnersihp meetings would be much shorter, and you wouldn't have to worry about your partner trying to kill you, for another.--
yes I know there are also benefits to having partners, two heads
are better than one,etc.
Over all, I think you guys convinced me that the buy back is the better deal, if all things are equal as in your story.
Having said that, I have to factor in the obvious, which are Mr.
Owens coments that the company should wait for bargain prices.
If the share price in the partnership example is selling at a discount to face value, then it would clearly be the better deal.
Also remember the existing resturant has proven itself and what about the uncertainties of cost overruns,etc associated with building a new business ( and what if the new business takes longer to catch on?)
I'm running on longer than I intended, but anyway thanks, guys,
for the mental exercise!
Did my wife put you on this board to push me into the grave? We seemed so close. First, 1.8x book value is roughly what BOBE
is selling for. I'll bet even you paid more than book value for BOBE but I won't tell anyone you fell off the truck. Second,
I'm sure you would buy a restaurant that earned 11%. So would BOBE if they could. The story is asking you to make a choice.
Roughly the same choice BOBE faces. When you make your story you can make up your own choices. Third, 6% is the same as the $120,000
on a $2M restaurant investment. Your numbers, not mine. Third, we're not getting along fantastically, I suspect you're trying
to kill me. However, I might take you up on that 11% note just to saddle my conniving wife with the debt. Fourth, if I had the
same choice you had, I'd rather earn the $220,000 I'd earn on your share than than the $216,000 I'd earn (using the 6% number you
provided) building a new restaurant. If you only want $2M all the better -- but no kiss. Boiled down, I can't make it any simpler than
this. See ya.
From this comment I'm figuring you see the point and I think you're right -- although I think the risk/reward of
repurchasing shares may still be better than building a restaurant at current prices but I'm not going to go into that. As I said
earlier, its a more difficult decision now than it was a year ago (assuming managment had confidence they could get earnings back to
current levels). I wish management hadn't had the opportunity to buy back stock at such cheap prices. I kinda hope they don't have
the opportunity again (getting there was pretty painful). But I would expect that if they do, they are much more aggressive in
working to enhance shareholder returns. Back to the farm.
1 Why should i pay you 3.6 mil for your share of the 4 mil being equal partners is only worth2 mil?? thats dumb -not that fresh on the turnip truck!!
2 If I had a mind to I wuold build or buy another rest for the 3.6 and recieve a 11%return of equity after tax or 396000
This is after all venture capital and demands a higher retrun on Investment than 6% that i can get in the bank. or better yet
since we are partners go in to another rest with you on a 50/50 basis since we are getting along together so fantastically. If you
dont have the cash then your share of the equity in the first restaurent can serve as collateral -a interest bearing note of say
11% That way i am making 11%on everything
3Worst senario you want out period then i pay you your 2 mil and we kiss goodbye
4Better yet -we retire who the hell wants to work that hard esp in a rest.
Been there and done that have you??
boiled down stockholders are the partners and to pay off these partners would come at a premium either in cash or lost income in the present and in the future yrs.
Lets say you and I are 50/50 partners in a restaurant chain. Our partnership has a book value of $4M and an after tax ROE of
11% (16% pretax, no debt) or $440,000 in net income. Your Uncle Midge dies and leaves you $5M (a sufficiently high number for
this purpose). You can build a new restaurant outside the partnership (just to keep this clean) for $3.6M which will provide
$216,000 in net income (the 6% return figure should look familiar). Or, you can purchase my equity (just like BOBE can repurchase
shares) for $3.6M (1.8x book, 16.4x earnings, this too should look kinda familiar). What's your preference?
those were figures derived from my figures. I believe them to be pe ratios and or retrun on inv differentials when are almost the same level at this stage of the game based on earnings and projected earnings.
S Owens said that bobe hopes to have a 16% return on equity which is 320000 on the 2 mil. that is otherwise gone for ever
when the 100000 shares are repurchased. I realize that we are just considering one rest here but if bobe buys 500000 shares thats
5 rest that could have and should have but wasnt built. For a repurchase plan to be effective to raise the market
captilization by any significant amout "they" claim that a repurchase should be in the neighborhood of 10% of the outstanding shares.
500000 represents a little over 1% while the 320000 times 5 restaurants equals 1.6 mil dollars which raises earnings by 4 cents or
moresome 4 to 5% increase in earnings per share based on the last 12 months trailing earnings. Which is better 5%increase in earnings
or a 1%drop in shares outstanding.
Tax adv-we will say a rest cost 2 mil which is tax deductable as capital investment for bobe and at a 30% tax bracket that 2 mil only cost bobe 1.4 since it saves 600000 in taxes The 2 mil bobe spends on stock repurc hase is not tax deduct and cost the co the full 2 mill versus the 1.4 it cost for the rest.
Look at DEC bought a pot full of stock for 180+ a share repurchase instead of reinvesting in growth- stock sank to 30+ before the CPQ merger
I am all for stock repurchases for a company who has excess cash and no better place to put the cash These repurchases increases shareholder value with himnot having to pay any taxes until the stock is sold