August 18, 2021 11:00 am eastern time

Markets are about flat this morning.

There is interesting news from West Fraser Timber which is up 4.4% to $92.24. They announced that the result of their Dutch Auction to repurchase one billion dollars worth of stock will price at $97. That’s at the high end of their intention to purchase at $85 to $98. Lumber prices have fallen since the offer was made. It’s not clear to me if they were pretty much obligated to go ahead at this point or not. Overall, I suspect they are reasonably happy to pay $97 and that they believe that the shares remain under-valued. 

When a company buys back a very substantial amount of shares like this it is a big vote of confidence by management. The last Dutch Auction that I wrote about on March 29, 2016 was when TransForce (TFI International) bought back shares at $22 in 2016. Today those shares are around $140 so those selling at $22 did not get a great deal. West Fraser is a far more cyclical company and so we should not expect a repeat of the TFO experience but West Fraser is likely still positioned to do well.

Also, when a company or any investor wants to buy or sell a very large amount of shares the current market price is not necessarily what they will get or pay. The current market price is based on the most recent transaction for as little as 100 shares. It’s highly relevant to small retail investors but not as relevant to big institutional investors or the company itself.

It would be nice to see more of these Dutch Auctions or very substantial buybacks in cases where shares are under-valued. But the company also has to have the cash to do it or the borrowing capacity and willingness to borrow. Often they don’t have the cash and are unwilling to borrow. And in some cases the share price has little to no impact on the company itself and so they are just not that motivated to buy back shares.

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