Time for a refresher on buyback best practices.
It was only a matter of time. Corporates that have been allowing cash to pile up on the balance sheet—while seeing cheap debt financing available to them in capital markets if the need to stockpile more to, say, make an acquisition arises—are now not just thinking about but announcing share repurchase plans or the resumption of repurchases put on hold.
Judging from recent discussion among NeuGroup treasurers, thinking about share buybacks again also is an opportunity to review the buyback execution playbook. As treasurers return to repurchase treadmills there is no sense falling back into old routines without examining their form, purge bad habits and restart programs with fresh perspective on best practice (and compliance).
Questions to be asking
Among the questions treasurers could be asking about their repurchase practices is how frequently they should issue repurchase orders to their broker(s); the best execution alternatives (e.g., at market fixed allocation to price points on a grid, seeking to hit a target with variable dollars), whether a bank program employing some variation on volume average weighted price (VWAP) should be considered; or if employing derivatives, post-Dodd-Frank is a good idea?
Far short of best practice, treasurers also want to be sure that being away from the exercise they don’t fall afoul of rule 10b-5-1 as they resume their programs and get hit with an embarrassing insider trading charge made more likely by the heightened scrutiny around corporate governance that is also part of today’s reality.