- The company’s Board of Directors authorized an additional share repurchase of $1 billion in the company’s FY2010 earnings announcement.
- McKesson raised its dividend by 50% last week.
I wrote about the Phoenix Group option in Is McKesson in the hunt for an EU acquisition? The Merckle family, who owns Phoenix, made a bundle off the sale of Ratiopharm to Teva and therefore lost the compelling need to sell the European wholesaler.
A Wall Street Journal article written at the peak of the buyback boom of 2007 suggests three reasons for buybacks.
- Buybacks are a tax-efficient way to return cash to shareholders. Dividends are taxable but there is no tax due on a share buyback unless investors sell their shares.
- Buybacks signal that the company doesn’t know how to grow.
- Buybacks can benefit corporate executives, especially if their compensation is tied to Earnings Per Share and share-price targets. Buybacks also benefit executives with large holdings of stock options.