he would be in favor of creating value inside the company at IRRs 15%... at this point, who wouldn't be??
I think the short answer is, a lot of current shareholders appear to be in favor of "creating value" by issuing a dividend and thereby boosting the stock price instead of reinvesting at mid-teens IRRs. Finance 101 says that dividends don't create value, but this yield-driven market has not been particularly bothered by that theory.
I'm on the fence on the divs-vs-investment question. But if and when it comes time to make that call, I hope Ian doesn't try to split the difference and do both. IMO, If the strategy is growth, there should be no dividend; if the strategy is income, they should devote basically all free cash flow to dividends and not try to squeeze in a ship purchase or two. (FWIW, if the strategy is income, I'd also be in favor of a distribution-maximizing variable dividend that grows or shrinks based on FCFE, instead of trying to finesse a "stable" dividend rate). Trying to please everyone will more likely result in pleasing no one.
Very OT and very very late, but I just now got around to looking at how Lodgenet turned out (short answer: an absolute disaster). My question for any LNET followers who might still hang around this board: do any of you honestly think Colony Capital cut a good deal in their $80m recapitalization a year ago? The only ones who got wiped out were commmon and preferred shareholders, and they were pretty near bust at that point anyway. Debtholders are still scheduled to be paid 100 cents on the dollar, plus interest, no haircut. So for their $60m equity injection, Colony inherited every penny of the negative $185 million book value that existed pre-bankruptcy. And their new $20m revolver is now, at best, pari passu with the old debt. So without investing so much as an extra dollar, the old-money debtholders keep their first claim on the spoils from a successful turnaround while the new money is last in line. Unless Colony already owned all of the old term loan, how could they possibly see that as a smart deal?
And regardless of the financial engineering, it's also unclear to me how they turn LNET around. Sure, they can kill the next-generation set top box or whatever other strategic initiatives LNET was working on before they went bust. But LNET was hemmoraging money all over the place; just killing capex wouldn't stop the bloodletting. Or maybe Colony is a true believer: maybe they think that by spiffing up their offerings, LNET can become a moneymaker once again, despite the huge macro trends working against them? Again, I don't get it. Your thoughts are appreciated.