You Hate To See It

File this under “things we don’t want”.

https://www.epsilontheory.com/yeah-its-still-water/

From 2014 through 2018, Texas Instruments bought back 228.6 million shares for $15.4 billion. That works out to an average purchase price of $67.37.

Over that same time span, Texas Instruments sold 90.8 million shares to management and board members as they exercised options and restricted stock grants, for a total of $2.5 billion. That works out to an average sale price of $27.51.

The difference in average purchase price and average sale price, multiplied by the number of shares so affected, is the direct monetary benefit for management. This is true whether or not management sells their new shares into the buyback or holds them. That amount works out to be $3.6 billion.

In other words, 40% of TXN’s stock buybacks over this five year period were used to sterilize stock issuance to senior management and the board of directors.

https://www.epsilontheory.com/the-rake/

In 2018, JP Morgan bought back 181.5 million shares of stock for $20 billion. Also in 2018, JP Morgan issued 32 million new shares to management (18% of buyback). Those newly issued shares were worth $3.5 billion then, and are worth $4.2 billion today.

In 2017, JP Morgan bought back 166.6 million shares of stock for $15.4 billion. Also in 2017, JP Morgan issued 31 million new shares to management (18% of buyback). Those newly issued shares were worth $2.9 billion then, and are worth $4.03 billion today.

In 2016, JP Morgan bought back 140.4 million shares of stock for $9.1 billion. Also in 2018, JP Morgan issued 38 million new shares to management (27% of buyback). Those newly issued shares were worth $2.5 billion then, and are worth $4.94 billion today.

Were these newly issued shares spread evenly throughout the company, perhaps as part of an employee stock ownership program (ESOP)?

No. In each year, there were fewer than 1 million shares issued for the JP Morgan ESOP program, less than 3% of the dilutive issuance. Senior management received more than 97% of the newly issued shares.

 

C-Corp Open Thread

7/31/19:  Would love to hear from readers what they would like to see in terms of governance and structure should TPL be converted to a corporation.

Your comments and replies to comments are welcome.

If the comments get substantive we will figure out a way to pin it to the top for a while so that it doesn’t get missed by our new gang of seven.


Update 8/1/19:  Thanks for your submission so far!

I’m going to leave this post at the top of the blog so we can keep the ideas flowing.  In a few days time I will put together a “top 5” or thereabouts that represents the majority of the sentiment.

We’ll keep the thread going until we capture the concensus of readers.  From there we’ll figure out a way to get it into the right hands.


Update 8/7/19:  Keep ’em coming!  Will start aggregating this weekend. 

Murray Writes

Investor Group Sends Letter To Texas Pacific Land Trustees Highlighting Urgent Need For Corporate Governance Reform At TPL

Happy July.  We start the month off with a letter from Murray Stahl appealing for clean governance.  MS fighting back against the takeover narrative started by the Trustees.

Your press release and the examples you cite simply calls attention with clarity to the range of abuses possible within the current framework.  It is for that reason that the other day I called upon you to provide each shareholder with an updated shareholder list to facilitate the formation of open discussion groups among shareholders with a view of developing a consensus regarding alternative governance structures.

Incidentally, I declined to join your exploratory committee since I would have been required to sign a confidentiality agreement regarding governance discussions.  I wished to retain the liberty of open discourse and I hope that the shareholders who read this letter will find it to be a constructive effort to promote discussion.

5/22 Meeting Notes

Trustees not present

Oliver opened

Sidley Austin lawyer interrupted. Her position is that the meeting isn’t lawful

Motion was made to not adjourn. DF King (proxy agent) seconded

Live ballots being voted now

Many folks/ lawyers/ arguing about validity of meeting whilst votes being collected

Official vote count not disclosed yet

Craig Hodges just came out strong for change

Lots of folks yelling over each other

Oliver reads statement that I couldn’t hear well

Vote to be announced this afternoon

Meeting adjourned

Q&A next

Oliver speaking about the value of our asset

Oliver states that he has no conflict of interest with TPL and maintains it will stay that way

Oliver wants more clarity on water. Where did the $35mm in capex go? Many options to take on water but can’t fully comment until he sees the detail

Oliver wonders why the Trust has stopped repurchasing shares

Q: How will you work w other Trustees? Oliver says he will insist on corporate governance. Says skin in the game is needed

Oliver: let’s ride this wave and buy units back. Let’s not screw it up

Oliver: path to a corporation is the quickest and easiest way to modernize governance. C Corp will buy back shares if that it is the best use of capital. Will not issue shares

51 minutes in. Still going. Personal opinion here: Oliver doing a great job in inspiring confidence. We’ll be in good hands if he becomes trustee.

Sidley lawyer says they don’t believe there is a quorum

Group asks why Oliver hasn’t filled out questionnaire. Oliver recounts timeline about PY getting the nod before a questionnaire was provided to Oliver. It’s pretty clear the Questionnaire was a gotcha.

Q&A adjourned

Staking Out The Middle Ground

I’ve been fortunate to talk to a large number of TPL holders over the past month.  Down to a person, the group is passionate about TPL and wants only the best (read: long term value maximization) for the Trust.  Old and new investors alike have a great deal of reverence for the history of the trust.  Another common refrain I hear from investors is that of TPL’s strong working culture and highly engaged team.  So, in light the commonalities and positive attributes above, I suggest all sides come together and steer this proxy battle away from getting any uglier.

Middle ground proposal:

  • In light of the wishes of a block that owns 25% of TPL, current Trustees Barry and Norris move to nominate and accept Eric Oliver as Trustee.
  • Trustees (working together) nominate a 5-7 person Governance Exploration Committee.  All members of the committee must be agreed upon by all three trustees.
  • Governance Exploration committee works for a period of six months to determine and recommend a long-term path for TPL oversight that 1) is respectful of the long term past values and goals of the Trust and 2) reflects 21stcentury realities of both corporate governance and the magnitude of the opportunity in West Texas.
  • New Governance form is brought to sub-unit holders for a go/no go vote
  • No vote = back to the drawing board
  • Yes vote = mandate to execute

That’s it.

It’s not perfect, but it represents a fair shake for all involved.  There are probably many other solutions like it.  The important part is that all sides come together and a solution is adopted.

The stakes are extremely high.  Mistakes can cost billions. Let’s set TPL up for high quality strategic direction and decision making via improved governance NOW.

Resistance to come to a common-sense middle ground should be looked upon by investors with contempt.  Personal ego, pride, and control should come AFTER doing the right thing for investors.

The horse is out of the barn, the cat is out of the bag, and we can never go home again.  There will never be another day in the future where governance at TPL isn’t an issue.  It must be resolved.