Why Reward Shareholders Looking to Sell?
TL/DR –
Mark Cuban, the billionaire entrepreneur, spoke about his disapproval of share buybacks in 2022. He expressed that a tax on buybacks is a good idea and that companies need to decide between share buybacks and dividends to reward shareholders. He argued that share buybacks benefit those who are selling stock rather than those who keep it, and suggested that companies should buy back shares from employees to eliminate their pricing risk.
In their efforts to boost shareholder value, companies have several strategies at their disposal, including dividends and share buybacks. Billionaire entrepreneur, Mark Cuban, however, has made it clear that he is not a fan of the latter, expressing his disdain for share buybacks in 2022.
Cuban’s Criticism of Share Buybacks
The Dallas Mavericks owner frequently shares his views on a variety of business issues, and in 2022, he gave a notable critique of share buybacks, which had become a contentious subject due to the Inflation Reduction Act’s 1% tax on such payments from corporations.
During a phone interview with CNBC’s Andrew Ross Sorkin, Cuban asserted, \”No one is a fan of more taxes, but of all the taxes you’re trying to create, I think a tax on buybacks is a good idea.\”
He declined to compare it to the carried tax because the two are not the same, and he admitted that he is not an expert on the subject.
The billionaire businessman stressed that corporations should make informed choices between dividends and share buybacks when it comes to rewarding their shareholders.
He refuted the old belief that share buybacks offer greater tax advantages for shareholders, saying, \”The old notion that share buybacks were more tax advantageous for shareholders, this is just not the case any longer.\”
He also detailed who, in his viewpoint, truly benefits from share buybacks, stating, \”For share buybacks you reward the people who are leaving and selling your stock instead of rewarding the people who are keeping your stock.\”
His conversation with Sorkin followed a thread on social media in which Cuban said that share buybacks are not typically beneficial for the majority of employees because they seldom buy these shares directly from them. Furthermore, employees do not have the opportunity to time their sales to coincide with the announcement.
Cuban then suggested that companies should buy back the shares directly from employees to mitigate their pricing risk, asking, \”Why should a company reward shareholders who want to sell all, or reduce their holdings? You talk about misaligned incentives with the board/management and stakeholders.\”
The Inflation Reduction Act of 2022 brought into effect a 1% tax on stock buybacks, a method, along with dividends, used by companies to increase shareholder value. By buying back stock, companies reduce the number of outstanding shares, which can indirectly enhance earnings per share and benefit shareholders.
This article was previously published by Benzinga and has been updated.
Photo courtesy: Kathy Hutchins / Shutterstock.com
—
Read More US Economic News