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Taro Pharmaceutical Industries Ltd. Message Board

  • moydegem moydegem Feb 27, 2013 11:01 AM Flag

    A huge BuyBack is a huge waste of money*

    Sometime buyback works many times they don't. Cisco, for example, spent $65B, and PS hardly budged. Buyback is a financial engineering that does not produce one extra cents of profit. If Taro is undervalued, the market will eventually realize that, and will bring Taro’ share to its right value without spending that much money on a buyback.
    The buyback advocators wrongly assume that since the E (in EPS) is not affected by the buyback, and the number of shares shrinks, therefore, the EPS is higher, and when multiplied by the P/E of Pre-buyback will yield a higher price. This assumption is wrong! Many times the P/E tends to shrink, because the amount of money used for the buyback is reduced from the company's book value. Given two completely identical companies except in one respect: one has $486 in cash on its balance sheet, the other one does not. Would you assign the same P/E for both companies? Of course not! The company without the cash deserves lower P/E then the P/E of the company with $486 on its balance sheet.
    Another reason-- buyback will raise Sun's ownership in Taro. Sun’s grip over Taro is too strong, the last thing Taro’s investors should do, is make it even stronger.
    However, there is one buyback I would love to see-Taro buying some of its own shares from Sun at market’s price and retiring them. Currently Taro trade is at ~$54. Just few months ago, Mr. Shanghvi of Pharma said Taro was overvalued at $38. So, here is a chance for him to Sell Taro at a windfall - a whooping %42 premium to what he considered overvalued. Do you think, given the “opportunity”, Mr. Shanghvi would put his money where his mouth is? Not a chance! That will demobstrate how much trust you can put in this man’s statements.
    Sometime buyback works many times they don't. Cisco, for example, spent $65B, and PS hardly budged. Buyback is a financial engineering that does not produce one extra cents of profit. If Taro is undervalued, the market will eventually realize that, and will bring Taro’ share to its right value without spending that much money on a buyback.
    The buyback advocators wrongly assume that since the E (in EPS) is not affected by the buyback, and the number of shares shrinks, therefore, the EPS is higher, and when multiplied by the P/E of Pre-buyback will yield a higher price. This assumption is wrong! Many times the P/E tends to shrink, because the amount of money used for the buyback is reduced from the company's book value. Given two completely identical companies except in one respect: one has $486 in cash on its balance sheet, the other one does not. Would you assign the same P/E for both companies? Of course not! The company without the cash deserves lower P/E then the P/E of the company with $486 on its balance sheet.
    Another reason-- buyback will raise Sun's ownership in Taro. Sun’s grip over Taro is too strong, the last thing Taro’s investors should do, is make it even stronger.
    However, there is one buyback I would love to see-Taro buying some of its own shares from Sun at market’s price and retiring them. Currently Taro trade is at ~$54. Just few months ago, Mr. Shanghvi of Pharma said Taro was overvalued at $38. So, here is a chance for him to Sell Taro at a windfall - a whooping %42 premium to what he considered overvalued. Do you think, given the “opportunity”, Mr. Shanghvi would put his money where his mouth is? Not a chance! That will demobstrate how much trust you can put in this man’s statements.

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    • Do you really believe majority shareholder will sell TARO shares at $54 per share or for that matter at $140 per share ?
      Based on their actions thus far, their goal is firm to buy our shares as cheap as possible. $24.5 , $39.5 and NOT EVEN ONCE special committee considered putting Taro on block for Perrigo, Valeant, Teva, Mylan to bid. Using perrigo's valuation multiple, Taro will fetch $150 per share. But majority shareholder was unwilling to sell his stake. Which tells us how invaluable Taro is to SUN.

      • 1 Reply to imho_dyodd
      • regarding your first sentence, please reread the paragraph in my post starting at "However, there is one buyback I would love to see-.. ", this time pay attention to the tone it is written. The content intended to show more about the character of Mr. Shanghvi then to suggest a way to make him sale.

        I agree with the rest of you post

 
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