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Encana Corporation Message Board

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  • margin321 margin321 Feb 24, 2007 1:11 PM Flag

    other ideas on how to spend the cash?

    Have a great day. I have a few other things to do as well.

    My best example of deworsification is Quixote.

    They have a nice little business making crash barriers and truck mounted crash attenuators - they have huge market share and you can see their products on many highways and in many construction zones.

    Trouble is they made too much money.

    First they tried unrelated acquisitions - things like laboratory machines, artifical blood, even stenograph machines (no, I am not kidding). Then they thought they could acquire other companies in the road building and maintanance areas - de-icing, weather channels and warnings, traffic signs and lights.

    The upsot is that NONE of these ideas paid off, they have peed away all their cash flow, and the market cap is about what is was 20 years ago.

    Now they knew that their core business was slow growing and they already had most of it. And they wanted to grow. And they did gradually increase the dividend.

    But since their ideas for putting the cash to work never did work, they would have been better off buying in shares, splitting, buying in shares, splitting again. For the monay they wasted each 1987 shareholder would have four times the shares at the same price as today and would be drawing four times the dividend.

    So I guess the message is - a company should consider investing outside their core business only if the return on the new business they enter is ABOVE the return on the business they are running. Otherwise they should strive to increase the NAV of each share by combination of share buyback and increased dividends.

    I think ECA is right on track. In fact their whole idea of a trust for about 20 Billion of their assets was to grow the NAV of each share. Only a change in tax code altered that plan. They will continue to explore creative ways to work for the shareholders. There will be a whole lot less worry about what they should be doing when share price moves through 50's to 60's and beyond.

 
ECA
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