When managements and boards have little idea how to stimulate organic growth, they look to financial engineering to create earnings growth by retiring shares. If necessary, they use their equity as currency or lever up to make acquisitions for sales growth. In the case of Symantec (SYMC) over the last 10 years, they have done both. So when you ask yourself why investors did not cheer SYMC’s decision to split their core security business from their previously acquired storage business, it is likely because the company with its board’s oversight have destroyed untold amounts of shareholder value over the last decade.
In December 2004, when SYMC sported a market cap of 50% greater than its current $15 billion, the erstwhile security only company made a $13.5 billion bid for storage company Veritas Software.
In addition to making a bull market mega merger, the company went down the dual path of buying back their own stock hand over fist. The graph below lifted from Yahoo Finance via MarketRealist shows that after 10 years, SYMC has retired more than $12 billion in shares and recently started paying a healthy dividend yielding 2.7%:
So after a $13.5 billion acquisition and probably close to $13 billion in cash return, the company’s market cap is only $15 billion a decade later. Ouch. SYMC has been a serial Value Destroyer, and aside from amassing a $4 billion cash hoard ($2 billion net of debt), the company’s entire earnings growth in this period has likely come from the retiring of shares.
Here is the kicker – the board just announced their choice for CEO has been someone who has been a senior executive at the company since, wait for it, the Veritas Merger back in 2005. Their new CEO is likely to deliver more of the same, but to only half their current business lines. SO more of the same without all of the once sought after synergies, looking down the barrel of a restructuring charges, re-organizations and management shake-ups.
This breakup under existing management is a joke and the company should be taken private by new financial overlords who will put new management in place and set the stage for value creation.