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Originally Posted by Chrysalis
now I am am confused, one min NTL are broke the next they wasting 500million on buying back shares.
Someone explain to me please how they get away with this.
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Well, in a nutshell, here's how they 'get away with it'...
NTL is basically owned by the banks. The banks did not originally intend to be equity investors in the business (shareholders), they set out give loans which would be repaid with interest, a much more lucrative option and, generally, financially less risky than exposing yourself to the stock market in return for a dividend which is paid *if* the company does well.
However, NTL royally boogered things up for the banks by expanding too fast just before share prices started crashing, and ended up bankrupt. The company had to apply for legal protection from the banks while it tried to sort the mess out, to stop the banks dragging it off to the liquidators to be sold off piece by piece so they could get their loans back. While protected (the 'Chapter 11 Bankruptcy Protection' people talk about), NTL said to the banks, 'look, chaps, we can't repay you the money we owe because we haven't got it. But this is a potentially very profitable business, so if we give you a whole pile of shares instead of your loans back, you'll get your money, please be patient and give us a chance!'. The banks agreed to this, and the original shareholders saw their own investments become worthless as the banks took over effective ownership of the business.
We now have a situation where a load of banks, who had wanted to lend NTL cash and then coin in the interest, are instead reluctant shareholders. They would rather not be in this position, because the value of those shares can still go down as well as up. So, they will be pushing the Board of NTLI like mad to do anything they can to give them their money back and at the same time preserve the value of the shares they still hold. The banks can't simply sell the shares they own; if they flooded the open market with shares the price would plummet and everyone would lose. The only way for the banks to sell some shares and preserve the value of the shares they still hold is to sell them back to NTL itself. The supply of NTL shares in the market is therefore unaffected - in fact, the total share issue is reduced, so if anything the long-term effect will be to push the share price higher.
Sorry, that was quite a large nutshell....
