Tuesday, April 24, 2012

IBM hikes dividend, boosts share buybacks by $7bn

Yep see our previous blogs a few years ago where we talked about why companies would start paying dividends. Aivars Lode

Still not the Big Blue cash machine of the mainframe era.

By Timothy Prickett Morgan

At this rate, in about 25 years IBM will be a privately held company.
IBM's board of directors, which is always ready to let Big Blue's upper management go down to the New York Stock Exchange with dump trucks full of cash to buy up shares to retire them, has done it again. The board has authorized another $7bn in share buybacks, adding to the $5.7bn in purchase authorizations that was still on the books. The company's top brass also said in a statement that they would seek even more authorizations at the October 2012 board meeting to keep the share buybacks a-humming.
IBM has spent a whopping $137bn since 2000 buying back its shares and paying dividends, and since that time it has retired about a third of its shares.
Considering that the company wants a rising stock price, since its top executives receive most of their compensation in shares and that means a pay raise for them, IBM has no intention of going private. And it is also a payday for investors when IBM buys the stock back from shareholders. So this share buyback scheme is just too good of a way to get paid to give up. Moreover, IBM grades itself on operating earnings per share growth now – not even actual earnings per share, as it used to – and it is thus highly motivated to engineer at least some of its EPS figures through share repurchases.
But at some point, pretty far into the future, IBM will run out of shares. At IBM's current market capitalization, the 1.16 billion outstanding shares of the company add up to just a little over $230bn. IBM's shares were trading at a low of $58.31 in September 2002 and with a few fits and starts have been bouncing around $200 in recent weeks.
If IBM shares keep climbing at the current pattern – which they have been holding for the past decade – the firm should be able to double its share price in the next decade, with some sawtoothing every couple of years as things go wrong – and they will. Big blue could also remove another half billion shares from its public float and still end up with the same market capitalization as it has today when it is all over.
The question is whether IBM's current or future management will be tempted to do a stock split if the shares stay much higher than $200. With Apple shares trading at $565 and Google at $605 as El Reg goes to press, there is a perceived value to a high stock price and IBM may want to let its shares ride up to $300 and then $400 over the next decade to get some sort of halo effect.
Just for a contrast to today, recall that back in May 1968, when IBM did a killer stock split, Big Blue was the blue chip stock on the NYSE, with its shares trading at $688 a pop. It had 60 million shares at the time, and the redistribution of 120 million shares was the largest split in history. Back then, IBM was enterprise computing, more or less, and it paid out $4.54 a share per year in dividends. Adjust that stock price for inflation, and it is on the order of $4,500 a share before the split – and that dividend spent something like $30 in today's 2012 dollars.
But today, after Big Blue's near-death experience in the early 1990s, where it didn't understand that the mainframe was going to get eaten by swarms of PCs and Unix servers, the company is crowing like a Chanticleer that it is boosting its quarterly dividend by 10 cents, to 85 cents a share. That's a cool $3.40 a share. And while that may sound like a reasonable amount of dough (and it is compared to other stocks), if you adjust that back to 1968 dollars, you are talking about 52 cents a share after deflating it. Good luck trying to live on that, widows and orphans. 

Monday, April 23, 2012

8 angel investors that entrepreneurs should avoid

Predator’s are everywhere. Finding a reliable partner is difficult. Aivars Lode

April 23, 2012: 1:56 PM ET

By Marty Zwilling, contributor

Many entrepreneurs believe all money is created equal. As long as somebody recognizes their million dollar idea and writes them a check, the source really doesn't matter. Most angel investors are pure, but there are some exceptions to watch out for:

1. Shark angels. This is the ultimate bad guy whose sole intention of getting involved in early-stage investing is to take advantage of what they believe is the entrepreneur's lack of financial and deal-making experience. If the term sheet process turns to pure torture, it may be time to respectfully bow out.

2. Litigious angels. The litigious investor will look for almost any excuse to take you to court. This type of investor never really focuses on the returns your company can deliver, but instead tries to make money by intimidation, threats and lawsuits. They know you won't have the resources to fight them, so they count on you "caving." Keep your attorney close by your side.

3. Superior angels. A number of successful business people, some of whom become angels, develop the belief that they are destined for greatness because of their clear superiority over everyone else. These are usually overbearing, negative people who are hypercritical of every decision you make. Don't be intimidated into bad decisions.

4. Control freak angels. This angel starts out looking like your new best friend. Once you are funded, he waits until you hit your first pothole and then points out "gotcha" clauses in your agreement that give him more control. This escalates into a requirement that he must step in to run your company himself. Only your Board can save you here.

5. Tutorial angels. The tutorial investor is not after control, but wants to hold your hand on every issue. The mentoring offer always sounds good up front. But after they write the check, it soon becomes apparent that their desire to be helpful 24 hours a day is a nuisance at best. Initially, your gratitude for their investment may prompt tolerance, but eventually the burden wears you down. Keeping your distance is the best solution.

6. Has-been angels. These tend to appear with every perturbation in the economy. They are usually high-flyers with a liquidity problem. They are still at the country club every day, but are now running up a tab. They will meet with you, and ask a thousand questions, but never get around to closing the deal. Learn to ask the closing questions.

7. Dumb angels. Wealth is not synonymous with business savvy. You can spot dumb angels by the questions they ask (or don't ask). If they ask superficial questions or don't understand business, a successful long-term relationship is not likely. But don't forget that people with wealth usually may have some savvy friends to meet.

8. Brokers posing as angels. These people are all over the place, often posing as lawyers and accountants. They have little intent to invest in your company, and will eventually solicit you to sign a fee agreement to pay them to introduce you to actual investors. Brokers are often worth the fee, but don't be misled about who is the angel.

How do you avoid most of these? Whenever possible, only accept investments from individuals in credible, professional angel investing organizations - not people who solicit you. Even then, do your own due diligence in the business community. Ask what other companies they've invested in, and talk to the CEOs of those companies to find out what kind of investor they've been.

Also, make sure your lawyer writes the initial investment document or term sheet - not the investor. This document should be standard for all your investors and not negotiated on a one-on-one basis. Watch out for any attempts to add clauses that can come back to bite you. Not all angels these days are even trying to earn their wings.

Marty Zwilling is CEO & Founder of Startup Professionals Inc