Friday, February 18, 2011

ConocoPhillips CEO's Novel Idea: Share the Wealth

ConocoPhillips (COP) is a company that, after a decade long acquisition spree and often paying steep prices for assets, is now in the process of shrinking itself to create wealth for shareholders. It's shedding low return assets and allocating that capital to higher return places (including the purchase of its own cheap stock). 

This Wall Street Journal article early last year summarizes some of the specific assets Conoco will be selling.

The sales should generate around $ 15 billion for Conoco. The funds were to be used in part to increase the dividend and buy back the stock.

Some excerpts from the following article:


It would be cheery to see a CEO admit that the purpose of the public company he or she temporarily runs is to create wealth for shareholders. And not to perpetuate either the CEO's job or the company itself.

While I'm waiting for that unlikely event, I'm going to take what cheer I can from ConocoPhillips CEO Jim Mulva saying that, in the short term, the best way for this oil company to create value for shareholders isn't to chase high-cost opportunities to look for oil but to pay off debt, buy back shares and raise the dividend so that the company puts cash in the hands of its shareholders.

Consistent with this, ConocoPhillips recently announced another dividend increase and an additional stock repurchase.

Considering the huge gains since the announcement of these programs, the window to buy the stock cheap is closing rapidly.

Unlike the recent moves by Sanofi-Aventis (SNY),  every lever that is available to ConocoPhillips is now being used to create shareholder value instead of growth for its own sake.



To be fair Conoco made a lot of mistakes over the past decade (essentially buying high and selling low) and only recently has become more disciplined. Maybe the same thing will eventually happen at Sanofi.

Adam

Long position in ConocoPhillips established at much lower prices
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