Following is a letter sent to the Editor of the Financial Times:
Sir,
It is good that Phillips has a a €4bn share buyback programme, plans to have an appropriate (that is, higher) debt level and as they say "plan to keep its dividend yield north of 2 per cent with a dividend pay-out ratio of between 40 and 50 per cent" ("Philips overhaul creates €20bn war chest" Financial Times, July 16, 2007).
With the company building cash reserves of €20 billion within the next three years, the market is now talking about a war chest. This sort of talk is normally followed by companies overpaying for acquisitions.
Phillips clearly needs less capital to run its businesses and should give all excess capital back to shareholders completely, not just what is currently promised.
Any future acquisitions that management wants to undertake should be justified to shareholders when they arise and, if additional capital is needed, they just need to ask for it.
Onésimo Alvarez-Moro
See article:
Philips , Europe’s largest consumer electronics manufacturer, on Monday revealed more details of a corporate overhaul that will give it a war chest of up to €20bn ($27bn) within three years.
Announcing second-quarter results, the 116-year-old Dutch company said it would offload stakes in a range of non-core companies and take on more debt, giving it the scope to finance acquisitions, buy back shares and bolster dividends.
Pierre Jean Sivignon, chief financial officer, said the divestments would involve reducing its stake in LG Philips LCD, the South Korean electronics company, from 32.9 per cent to less than 20 per cent “as a first step” once a lock-up period expired on July 22.
Philips is also looking at a sale of all or part of its 19.9 per cent stake in NXP, Europe’s third-largest chipmaker.
See full Article (paid subscription required).
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