, Columnist
How to Stop CEOs Chasing Harebrained Ideas
Saddling companies with debt to curb M&A leaves miners too exposed. There are other ways.
This article is for subscribers only.
Pay out cash to shareholders and that will stop bosses wasting it on empire-building deals. This is activism-101 and it's a big component in the dual-fronted assault on Anglo-Australian miner BHP Billiton Ltd. The snag is that, in this industry at least, siphoning out cash to the max is a counterproductive way of keeping managers in check.
Hedge fund Elliott Advisors thinks BHP will generate $31 billion of excess cash flow in the next five years. It wants $33 billion returned to shareholders in a five-year buyback program to thwart management doing bad M&A.