I've never been a fan of the Dutch auction approach to share buybacks. If you want to swallow down some of your outstanding shares, just do it. There's no need to dance around the ring like Muhammad Ali in his prime, baiting investors with flashy paperwork and testing their allegiance.
So I was a bit amused by the announcement coming out of the Brinker International (NYSE: EAT ) camp last night, explaining that the company would be buying back fewer shares at a higher price range than it had originally planned.
Let's go back to Aug. 28, the day Brinker revealed its original plan. It would spend $450 million to repurchase roughly 14% of its outstanding shares. Shareholders would be able to tender their shares, pricing them between $35.25 and $38.50 apiece. The company would then buy up the 11.7 million shares offered at the lowest prices (even though they would all be priced at the highest of the winning bids).
The problem is that Brinker shares were already trading at $36.82 before the announcement was made. The next day, the stock popped up to $38.52. Was anyone really going to offer up their shares for less than they could receive on the open market?
The stock market was bouncing back after its spring and early-summer lull. Restaurant stocks were inching their way back into favor. It was a bad deal before, and it only looked worse as the stock lapped the $42 mark earlier this month.
Not enough suckers out there for you, Brinker?
Just as last night's deadline was approaching, the company behind the Chili's and Macaroni Grill concepts decided to extend the deadline. Along the way, it also raised the high end of the auction range to $40. That means that the company will only be buying about 11.2 million shares, but it doesn't mean that Brinker has gotten any smarter. Save for a brief spell at $39.95, the stock hasn't dipped below $40 in two weeks.
One can argue that there are no victims here. Shareholders are happy because their stock is trading higher. However, Brinker could have spared itself all of the fuss had it just announced a more conventional buyback, then gone about its business in acquiring gobs of stock in the mid-$30s.
Buybacks have been contagious in the restaurant industry. McDonald's (NYSE: MCD ) will be repurchasing shares after it cashes out on Chipotle Mexican Grill (NYSE: CMG ) . CBRL Group (Nasdaq: CBRL ) recently went the Dutch auction route, but at least it had the common sense to price it well above the market price.
So go ahead and mark Oct. 11, 2006, on your calendar. That's the new deadline for Brinker's latest tender. Unless the stock declines in the coming days, expect another song and dance about upping the range and having to settle for less than the 14% chunk of its outstanding shares that Brinker was aiming for last month. Better yet, maybe the company will just call the whole thing off.
That wouldn't be too bad. Spare us the drama, Brinker. If you really want your shares so badly, live up to your ticker symbol and EAT.
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Longtime Fool contributor Rick Munarriz loved when NBC's The Office hosted the Dunder-Mifflin awards inside a Chili's. He does own shares in CBRL Group. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has a disclosure policy.
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