QUESTION:
- Why do you bring up the subject of a share buy-back if the company cannot do this now?
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ANSWER:
Several reasons:
- The CEO Blog is now read by a variety people who do not participate in discussion forums. These readers are not familiar with the company’s policy on this topic, namely to consider the share repurchase procedure as an option in the future, if the company were in a position to do so, as an alternative to a reverse split for float reduction.
- For those who do read/participate in discussion forums, there is a wide range of experience amongst individuals. Some participants have little experience and are not familiar with the mechanics of corporate finance. An example of this is the misconception that an operating deficit is the same as debt. Winning Brands debt is much less than the deficit. Such people benefit from knowing that a float can be reduced, not only grow, and that the reverse split mechanism is not the only method to reduce the float. Share re-purchases can and do happen. One reason that they are not as common as reverse splits is cultural. Some CEO’s or controlling shareholders are not interested in the real experiences of their shareholders. It has happened too often in the junior OTC environment that shareholders are considered “faceless”, ie anyonyous numbers whose only value is in the dollars that they represent. Others, and I am in this category, value the human being in the equation. Investors are not only putting their money on the line, but also their faith that the company will genuinely make its best efforts for their benefit. A reverse split is much easier. Used inappropriately, it is the lazy way to increase share price for reasons of optics. It is a cultural matter at Winning Brands to focus on building an enterprise that has real value over time so that capital gains opportunities arise for investors. Many people, including critics, will honestly admit that they have enjoyed trading profits. Amongst those who do not trade, there are many who have managed to reduce their average cost base to a level that makes substantial capital gain a distinct possibility if/when the company hits its stride in the U.S. market. A share re-purchase program is of greatest benefit to this latter group – the shareholders who have not traded much in the interim. They deserve to know that the company is aware of their needs too.
- There are misconceptions by many people about the effect of a share re-purchase arrangement and why a legitimate program is beneficial to the shareholders, regardless of the short term share price response. If the share price at the time that a share re-purchase begins is low, and does not immediately increase in response to the commencement of the re-purchase program, then all shareholders who continue hold their shares benefit strongly by the company’s ability to reduce the float more rapidly, because their remaining shares represent an increasing percentage holding of the company. This ultimately benefits them because the price will inevitably catch-up to reflect this. On the other hand, if the share price does increase in response to the commencement of a re-purchase program, then shareholders have benefited immediately by that very fact itself.
- The argument is sometimes made by critics, when it suits them, that common shares are not worth anything because of the voting rights of the preferred shares. However, a share re-purchase program is inherently beneficial to the common shareholders. An ocassional reminder of the existence of this mechanism is also a reminder that the culture of Winning Brands is to channel the capital gains opportunities through the common share class of stock.
- Not all shareholders have a long history with the company. Amongst the newer shareholders, this topic may not have been raised before.
- Policy options are worth discussing. Winning Brands has an excellent track record of discussing the merits of various approaches to its operations with its interested shareholders. This is in the form of a thorough Investor Page on its website, an archive of conference calls, extensive posted correspondence on points of general interest on discussion forums and now the weblog. Each time such a topic is raised by the company, it provides the basis of further questions and fosters constructive dialogue. This blog has not discussed this subject before.
- Winning Brands receives offers of funding continuously. The company is selective, however, in whom it deals with. Additional interest has been generated since the launch of the weblog. One mechanism to filter out unsuitable parties is to establish the appropriate cultural precepts through such discussion. By declaring a preference for share re-purchasing instead of reverse splits so publicly, the company sends the message to some of the would-be funders not to bother approaching us if they are going to be advocates for a reverse split.
