Technology investors tend to hate stock buybacks, most of the time for good reason. When the CEO of a dot-com business asked me recently what I'd think if his company announced plans to buy back its shares, I said I'd think that investors would take it as a bad sign -- that the company couldn't think of any better way to deploy its capital.
I still felt that way Thursday, when tech-oriented consulting firm
announced that it would buy back, "from time to time," 7.5 million shares, worth more than $118 million at MarchFirst's closing price before the announcement. Those shares represent 11% of the current float. MarchFirst, for those keeping score at home, is the product of the recent merger (completed on the day of its name) between
in Chicago and
in Santa Clara, Calif.
MarchFirst certainly can afford the buyback. It ended March with a balance sheet that included $370 million in cash and short-term investments. As a consulting firm, its capital needs aren't huge. And the company achieved gross margins of 50% on first-quarter revenue of $227 million. The $113 million operating loss MarchFirst reported in the quarter largely is the result of the $118 million charge it took for amortizing the goodwill it assumed in its $7.1 billion takeover of USWeb/CKS, accounted for as a purchase rather than a pooling of interests.
But MarchFirst's stock suffered grievously after the Ides of March. The shares pushed over 52 just days after the merger but have drifted sickeningly downward since, closing Thursday at 16 9/16. That plunge prodded CEO Robert Bernard to act.
"We believe in our company," says Bernard, formerly CEO of Whittman-Hart. "We believe our company has an incredible asset and represents an incredible investment." He notes that the buyback shows management's confidence in the company's outlook. And he stresses that the company's buyback plan is not diverting resources from company-building investments. He says the recruitment of new people continues apace. "We're not stopping any of that," says Bernard.
Buybacks aren't unusual.
has used its cash to shrink the supply for years. Even
, a big company experiencing rapid growth, has repurchased $2 billion in shares in the last three quarters, partly to offset dilution caused by the exercise of employee stock options and partly because it felt the stock was undervalued. "We'll use our cash to reinvest in the company," says Stephanie Aas, senior director of investor relations for Oracle. But Oracle will continue to buy back shares in general because "investors get rewarded in an indirect way" by the diminished supply.
OK, so good tech companies buy back shares, but they don't necessarily need to brag about it. What's inexcusable are companies that announce buybacks strictly as a gimmick to goose the stock and then never complete the buyback. There's no way to tell at the outset, of course, if the shares will be repurchased. But putting out a press release in no way obligates a company to buy those shares.
Two MarchFirst shareholders in particular have reason to see the share price rise.
, whose own shares have tumbled of late, holds warrants on MarchFirst shares at $35.975, according to MarchFirst's recent quarterly filing with the
Securities and Exchange Commission
, in a deal left over from USWeb/CKS, holds warrants at $31.90.
MarchFirst's shares rose Thursday, perhaps in reaction to the buyback announcement. They jumped 13/16, or 5%, to 16 9/16. That's good for day one. The real value, however, will be proved over time.
More on the Kimono Flap
I'm impressed with how many of you hate political correctness so much that you objected to my
suggestion here yesterday that the expression "open the kimono" is sexist and therefore should be avoided. I know it's debatable to what extent geishas were exploited. And I know that men, especially in premodern Japan, also wore kimonos. I just disagree with most of my correspondents that avoiding an expression that might be offensive is an example of PC behavior. I can see how "open the kimono" rubs some the wrong way. It's just not that difficult to say it a different way.
My favorite note, and perhaps the most sensible, was this missive from a reader: "Unless there is something going on in that tent we should probably just let people open the kimono or raise the kilt depending on their preference. But then I live in San Francisco."
Happy Memorial Day.
Adam Lashinsky's column appears Tuesdays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at