Share buy-backs must be one of the most talked-about, most praised tools in the corporate restructuring kit. The Americans certainly like the strategy: in 1997 share buy-backs totalled $77 billion. But in Europe the hype has still to translate into reality. In the first 11 months of 1998 just $20.2 billion of stock was bought back, and $15 billion of that was generated by UK companies, according to figures from JP Morgan.
Not that you can blame the companies all of the time. Some chief executives might still think that to buy back shares is a tacit way of admitting that you have no new ideas for the company, but more and more are becoming aware of the positive effect a buy-back can have on share prices. The problem is either the legal framework, the tax treatment, or both.
This started to change last year, with France and Germany both changing the rules. In Germany, though, there was a seven-month gap between changing the legal framework in May and altering the tax treatment. As a result, those companies that wanted to buy back shares chose to wait, and a backlog began to build up.