Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.
There's never an activist investor around when you really need one. Carl Icahn is stomping his foot about how unfair Michael Dell's offer for Dell is but has been reduced to offering 2.6 per cent more than Mr. Dell – for only some of Dell's shares. David Einhorn thinks Apple shares will rise if some of them are called "preferred" (ta-da!). Meanwhile, there is a tech company that leaks value through its share buyback programme, has a quarter of its market capitalisation loafing on its balance sheet as cash, has a history of bad acquisitions, generates enough free cash to boost its dividend significantly, has underperformed the broader market by 35 per cent over five years and has had the same boss for nearly 20 years. And there is not a gadfly who wants a shot at it.
The company is Cisco. Its shares trade at under $25 (U.S.). It has $6 a share in cash. Since fiscal 2008, it has spent $23.5-billion – net of inflows from issuing shares to employees – on stock repurchases, or about $26.50 for every one-share reduction in its share count. Cisco's current dividend programme will cost it about $3.7-billion annually; it generated $10.8-billion in free cash over the past year. It could boost its dividend yield from the current 2.7 per cent to a meaty 4 per cent without breaking a sweat. And investors might be forgiven for thinking that a company that has spent $23-billion on acquisitions in the past decade has room for an asset sale or two. Plenty to do here.
Why, then, do dissident types keep their distance? Perhaps Cisco, with a market capitalisation of $134-billion, is too big to tackle; but size is not stopping critics of Apple, Mondelez or Sony. Maybe worries about margin compression at Cisco's core switching and routing business are scaring people off. But Cisco's 60 per cent gross margins mean there is lots more fat to be cut than at Dell, which gets by on 22 per cent. Could somebody please buy a few shares and write a nice, mean letter.
The Globe has launched a Streetwise and ROB Insight newsletter, with content available exclusively to Globe Unlimited subscribers. Get the best of our exclusive insight and analysis delivered straight to your inbox in a daily e-mail curated by our editors. Sign up for it and other newsletters on our newsletters and alerts page .