2006-03-10

Games Corporations Play: AutoZone


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Speaking of economics, Michelle Leder at footnoted.org has, in her hashing out of AutoZone's stock buyback a great case study on the difference between appearance and reality.

AutoZone is embarking on a stock buyback. Hurray! The company is bullish on its future, right? Well, the effects of the buyback are not good. AutoZone's debt ratio will jump from 5 to 30 percent. The increased debt led to the company's debt being reduced to "junk." So those who don't participate in the buyback will have their modest share price increase easily matched by interest expense. Somehow management finds this "more efficient."

Turns out a 29% AutoZone shareholder will give up his entire holding in the buyback. The difference between "buyback" and "insider sale"? The former sounds better, the latter sounds an alarm that can send investors running. Not much else in this case.

As always, good work Michelle.

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