A combination of earnings season and a weak market supercharged stock buyback announcements with 32 companies announcing buybacks since our last article. I came across the following Tweet this morning and was reminded that when management teams allocate capital well including knowing when to repurchase stock and when to issue it, long-term investors benefit.
Cumulus Media (CMLS), the radio stations operator with 406 owned or operated radio stations and a reach of nearly a quarter billion people, recently rejected a $15 to $17 unsolicited non-binding bid from U.S. radio veteran Jeff Warshaw. The deal would have valued the company at about $1.2 billion including debt. When I first saw this buyback announcement come through, I was a little surprised because Cumulus has a significant amount of net debt ($761 million) on its balance sheet and a market cap of just $280.61 million. The company had not bought back any stock over the last three years even as it traded below $5 per share for several months in 2020 and the stock is yet to recover to pre-pandemic levels. The board decided to reject this unsolicited bid and in the context of this rejection, the buyback starts to make sense. Despite the rejection by the board last week and weak market conditions, the stock has not given back the nearly 40% gain triggered by this takeover offer, implying that shareholders expect a revised higher bid.