what kind of protections does bankruptcy afford Norfolk Southern or other corp shenanigans can they pull to avoid having to do anything?
Around the same time as the LTL shenanigans, on 2022-09-14 J&J announced a $5billion stock buyback[0]. It's not that J&J didn't have the money which led them to do the "Texas two-step" and push liability to their soon-to-declare-bankruptcy LTL subsidiary. They just wanted to line their pockets with the money instead. Isn't that pleasant.
[0] https://www.jnj.com/:~:text=NEW%20BRUNSWICK,%20N.J.,%20Sept.....
Bankruptcy, rather — the serious kind — erases all ownership, sells the company off to new owners, and pays outstanding debts with the proceeds, in order of priority. This tends to result in more paid debts than an uncontrolled shutdown; fewer people want to buy a stopped business and it can’t make much money.
The good argument against buybacks is that companies tend to do it when the stock is high, and that’s bad for the shareholders.
It's not though. A state (New Jersey for J&J) gave the company a charter to do X.
J&J's charter was not to return money to shareholders [1].
[1]: https://www.investor.jnj.com/_document/johnson-johnson-resta...
As it stands, I have a legal document under penalty of perjury that says their purpose is to do business as allowed by NJ. And you _just_ have a statement made by yourself without penalty that their purpose is to return money to investors.
Sure, my document doesn't say they can't do buybacks. But to say the document calls it their purpose is highly misleading.
Okay.. what's the chain of logic here?
> but they’re less costly from a tax perspective.
Sure.. but they also interfere with the "public ownership" ideal, which is the specific principle I was commenting about in the original.
> Are dividends also to be banned?
No.. just buybacks. I think you can still have dividends, even though there's some abstract idea that they're equivalent.
> If so, what is even the purpose of a company
The question is.. "what even is the purpose of public ownership." If you want to operate privately, I believe all of these questions become moot.
> and who would possibly invest in a it knowing that it can’t pay any returns?
The public. Which is what we want. Or, again, stay private.
Buybacks juice earnings per share. Stock valuation uses P/E ratio as an input. Meaning buybacks disproportionately benefit upper management, whose compensation is tied to the stock price. There's a principal agent problem here. Management may elect to do a buyback even if it's not in the company's best interest. Dividends don't have that problem.
I'm hopeful that they will just clean it up, but this is a massive corporation owned by hedge funds we're talking about. The rules don't apply to them.
That is, shareholders can lose all equity claims. But that doesn’t mean destroying the business. It can be sold off to new shareholders and then sale proceeds used to make creditors whole.