Western Railroad Discussion > UNP financial enginering

I will use Soroban investment time line

Major investment 2" quarter 2016 at approvimately $ 80.00 share.  Numbers are from annual reports

UNP long term debt 2015 13.600 billion,  for 2022   31,600 billion
Treasury stock 2015 15,500 billion,  for 2022     54,000 billion
Net equity 2015  20.7 billion, for 2022 12.00 billion
Outstanding shares 2015  - 849,244,436 ,  Outstanding shares 2022  612,393,321 

Current share price approximately $ 200.00


 

that's how they do it: buy in at a low price, get on the board, vote to borrow to buy back company's stock thus raising the stock price while raising the company's debt, sell their initial 'investment' and leave the company and workers in shambles.

IMO that should be a financial crime and penalties ENFORCED.

dragoon Wrote:
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> IMO that should be a financial crime and penalties
> ENFORCED.

Not quite, because you're using hindsight.

Looking at the charts, there was a price drop of UNP from 2014 to 2016, from $110 range down to high $70s to low $80s. Soroban, like anybody else has the right to "buy the dip" so to speak.

I've watched obscure "funds" involved in a scheme to drive stock price down, then have the board approve "repricing" of stock options to the new low price, then allow the stock price to climb so those "in-the-know" can cash in on the options. I'm confident Soroban wasn't doing that, so there's no financial crime here.

It's all academic anyway. I watched the SEC (Security and Exchance Commission) look the other way ~20 years ago while the dot-com hypsters were having their way manipulating prices.... compared to now, the cheaters were discrete. Things are much worse now. So good luck wishing for "penalties ENFORCED."

Becuase of the NS derailment in Ohio, there is wave of new regulations building that will be costly to the railroads. I think you can write off any increased earnings for a while.

Ted Curphey
Ontario, OR

All this stock price manipulation reminds me of the craziness and madness that went on during the silver boom in the Nevada Comstock days.  Immense fortunes were made and lost in single days, often on single trades.  Reading about it all, in detail, made my head spin.  It was that obscene wealth won by some that made San Francisco become a truly rich, wealthy city.  The Gold Rush got things started, but the Silver Rush is where the big money was made.  And this SF became a city of ornate and oppulent Victorian mansions....

Let's play hypothetical for a moment: say there is a rule that no BOD of a publicly traded entity can authorize a buyback without getting an affirmation vote from the common stockholders. What would that do?

dragoon Wrote:
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> Let's play hypothetical for a moment: say there is
> a rule that no BOD of a publicly traded entity can
> authorize a buyback without getting an affirmation
> vote from the common stockholders. What would that
> do?

Well, why would they object if they were the beneficiaries? How about only if they ask the employees and meet customer approved metrics? OK, quit laughing...

JG



Edited 1 time(s). Last edit at 03/03/23 10:23 by jgilmore.

The problem with having common stockholders approve a stock buyback is that they are the ones who benefit from such.  That is pointless.  Buybacks should come from cash from operations, assuming that the balance sheet is in good shape (which that of UP needs to be improved, that is, excess debt) and that plant investments are what is needed to keep the company growing.  Buybacks should not come from debt issuance.  There should be tax implications that discourage debt for buybacks.

Steve

Large block shareholders (i.e. blackrock/vanguard et al) would naturally vote their own minions onto the board, thus controlling them. If the rest of the common shareholders go along, fine. But if things don't go as planned - i.e. debt induced balance sheet degradation, they have no one to blame but themselves. As things are now, UP can shift the blame to every little thing outside their control, even while plant and equipment falls apart due to asset stripping.The way things are now, the only stakeholders being punished are employees and customers. There must be accountability placed where it belongs - on the management.

SGillings Wrote:
-------------------------------------------------------
> The problem with having common stockholders
> approve a stock buyback is that they are the ones
> who benefit from such.  That is pointless. 
> Buybacks should come from cash from operations,
> assuming that the balance sheet is in good shape
> (which that of UP needs to be improved, that is,
> excess debt) and that plant investments are what
> is needed to keep the company growing.  Buybacks
> should not come from debt issuance.  There should
> be tax implications that discourage debt for
> buybacks.
>
> Steve

The present administration has introduced a tax on buybacks which is intended to make them more expensive.  Most economists and financial analysts see it as window dressing. Not much different than a trillion dollar tax cut for zillionaires that would be offset by miscellaneous cuts in fraud and waste. Didn't happen.

The fundamental math works something like this. Corporate earnings are taxed at the corporate rate, A portion of these earnings are paid out as dividends to share owners. And taxed again at their current tax rate. Double taxed income. Some dividends are qualified, so the individual portion is lowered a bit.

With buybacks, the Board says to management "Here's five billion dollars. Go into the markets and buy your own stock when you think the price is low.  Buy that stock, and then kill it" If the Board uses general corporate funds, they are not taxed. if the company borrows money, the interest cost is usually deductible.

So, if the company decides to pay a dollar of earnings out to shareholders as dividends, the owner might eventually get  40 cents of that original dollar or so. less if they live in a high tax state.  If they decide to buy back stock, the people who sell their stock can get capital gains tax treatment on their sale. The company pays no tax at all.

Union Pacific pays its advisors much big money to come up with capital strategies that maximize their financial well being. Just going by the published numbers will give you an idea, but not much of the meat.To do that, you need to take apart the 10-K and supplemental schedules and really dig deep into the numbers.

dragoon Wrote:
-------------------------------------------------------
> Large block shareholders (i.e. blackrock/vanguard
> et al) would naturally vote their own minions onto
> the board, thus controlling them. If the rest of
> the common shareholders go along, fine. But if
> things don't go as planned - i.e. debt induced
> balance sheet degradation, they have no one to
> blame but themselves. As things are now, UP can
> shift the blame to every little thing outside
> their control, even while plant and equipment
> falls apart due to asset stripping.The way things
> are now, the only stakeholders being punished are
> employees and customers. There must be
> accountability placed where it belongs - on the
> management.

We saw that with CSX and Mantle Ridge. If seven or eight managers control 60% of a company, the rest of us are just along for the ride.

Discussed at length on TrainOrders at the time

Lackawanna484 Wrote:
> We saw that with CSX and Mantle Ridge. If seven or
> eight managers control 60% of a company, the rest
> of us are just along for the ride.
>
> Discussed at length on TrainOrders at the time

was there a consensus?

Even with a 2/3 majority, the rest of us still don't have to ride unless they want to.

dragoon Wrote:
-----------------------------------------------------
>
> was there a consensus?
>
> Even with a 2/3 majority, the rest of us still
> don't have to ride unless they want to.
The

All you need is 50% plus 1 to elect your slate of directors.

They can sell their stock. Likely at a higher price due to the takeover.

Posted from Android

Lackawanna484 Wrote:

> All you need is 50% plus 1 to elect your slate of
> directors.
>
> They can sell their stock. Likely at a higher
> price due to the take

I agree that a voting majority should be able to choose their representatives. However, when expensing company funds for financial assets, such action should IMO require a 2/3 vote of ALL shareholders not just a majority of the BOD.
 

dragoon Wrote:
-------------------------------------------------------
> Lackawanna484 Wrote:
>
> > All you need is 50% plus 1 to elect your slate
> of
> > directors.
> >
> > They can sell their stock. Likely at a higher
> > price due to the take
>
> I agree that a voting majority should be able to
> choose their representatives. However, when
> expensing company funds for financial assets, such
> action should IMO require a 2/3 vote of ALL
> shareholders not just a majority of the BOD.
>  

That's an interesting observation, and one that a Board could decide to implement. 

Lackawanna484 Wrote:
>
> That's an interesting observation, and one that a
> Board could decide to implement. 

That's a bylaw change kind of thing, which is something akin to asking the wolf in the henhouse to allow the hens to decide if they want to be eaten. Such a rule must be mandated by regulatory agenies, otherwis management will vote to amend bylaws so as to allow them to continue burying the company in debt for greedy, self serving reasons.