Viacom's past share buyback binge leaves investors hungry

By David Gaffen

(Reuters) - In a conference call after the company's disappointing results on Tuesday, Viacom Inc Chief Executive Philippe Dauman, among other things, said he was "focused on getting Viacom's stock price back" to levels it had been "just a short time ago."

He has his work cut out for him. Shares of Viacom are down 64 percent from their peak in July 2014, a period when it was heavily repurchasing its shares.

Companies frequently tout buybacks as a way of delivering value to shareholders when other investment opportunities are scarce. But Viacom spent nearly $10 billion on buybacks at a time when the company's stock was on the rise and at levels much higher than it is now.

Buybacks have been criticized as a poor use of funds, particularly as many companies tend to increase their purchases as their stock price is rising, as Viacom did in this case. The company's free cash flow, a measure of financial health, has declined in the last couple of years.

A recent Reuters analysis showed that many companies are spending on share repurchases at a far faster pace than they are investing in long-term growth through capital spending. At the same time, they are reducing their cash levels, only to find their financial flexibility limited in the future.

Others, however, argue that with weak economic growth and lackluster demand, companies are better served by repurchasing their shares and sending cash back to shareholders rather than investments that later turn out to be unproductive.

Between October 2012 and March 2015, Viacom spent about $9.7 billion on buybacks, at an average cost of $73.58 per share, based on company filings - or about 55 percent more than the current stock price now.

Viacom's busiest quarter of share repurchases was in the quarter ending September 30, 2013, when it bought back about $2.7 billion in stock at an average price of about $80 a share.

Viacom suspended its share repurchase programme in the quarter ending June 30, 2015.

The company's free cash flow has dipped in the last two years, falling to $2.17 billion for fiscal 2015, which ended in September, from $2.92 billion at the end of fiscal 2013.

(Reporting By David Gaffen; Editing by Bill Rigby)