ACAS gave up their Regulated Investment Company status several years ago. The stated reason was to build capital, and the fact that they could use losses (from the recession) to offset taxes. So they no longer need to pay out earnings. Instead, they've used "excess cash" to buy stock. The stated objective is to continue to buy stock, which raises NAV per share, rather than pay a dividend. They intend to pay a dividend when share price exceeds NAV per share. At the same time that they're issuing options and stock to management. So the only ones benefiting from cash flow are....
In theory, a corporation’s board of directors represents the interests of the shareholders. However, it is commonly believed that board members do not exercise sufficient control over self-interested managers because directors are typically handpicked by management insiders who control the proxy process.
- Kellogg School of Business
Hypothetically, the board could probably be sued for neglecting the shareholders value. This is the achilles heel in current corporate capitalism.
Adam Smith. In “The Wealth of Nations” he worried that “Being the managers of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own.”
Its what all these bdc and "alternate investments" do....the company buys stocks from their "employees",; in another month or two you'll see where they issue stock or options to those same employees. Its a non-virtuous cycle.
You don't have a problem with the company buying shares, issuing those shares to management, management selling those shares....back to the company?? A virtuous cycle.....
They're buying shares and giving themselves stock/stock options, which they then sell. Its a profitable cycle....for them. Company buys shares, they issue stock to themselves, then sell it....back to the company. How much have they made off of this system the last few years.....but no dividends for normal stock holders. Check the insider sales....
Critical investors have taken notice of the fact that American Capital pays its employees well -- really well. And some of its biggest compensation expenses flow through in the form of stock options. This quarter, American Capital put its options out on the table for everyone to see. Wilkus pointed out that, if all current stock options are exercised, it "could cause $1.41 of dilution or 7% of March 31, 2015's NAV per share."
A $1.41 haircut to the last-reported net asset value would push NAV down to $18.71 per share from $20.12 per share.
To offset some of the dilution, American Capital restarted its buyback program. I estimate that if the company uses all of the cash proceeds from exercised options to repurchase shares, NAV should fall by about $1.04 per share, assuming it pays an average of $14.50 per share that it buys back.
Above-average compensation has always been part of the American Capital story, and this hit to NAV is not, in any way, a one-time event. In its current form, the company is required by law to hold options to less than 20% of its shares outstanding, a limit it has routinely bumped up against. After the spinoff, American Capital will no longer be a registered investment company, and the legal limit on employee stock option compensation will cease to exist. Then, insiders will have a blank check to issue options on the asset management company -- the "crown jewel" of its portfolio.
But that's their gambit; management isn't fumbling and bumbling, they're lining their pockets. Repurchase stock, issue options...for something close to a wash.
Nope, the buyback is to soak up the options they gave to EVP Flax, (valued $4.xx per share) who immediately sold the shares at $15.xx). An ACAS tradition.....
What would be the purpose?? $27 is a fairly low stock price. The bureaucracy that goes into a stock split costs $$$; in fact, your broker might charge you for processing it. And what do you end up with? its like cutting a pie in half....you still have the same amount of pie. The only time it really worked out for me is when a stock did a split and then they kept the dividend the same.