LDK & Mr. Dumas: How To Wreck A Stock Buyback! (LDK)

This may be a first.  Have you ever seen a company repurchase stock and then announce that it repurchased too much stock and has sold shares to get the cash back?  This is the story of LDK Solar Co., Ltd. (NYSE: LDK) this Monday morning.

After tracking buybacks and dividends for almost 20 years, this truly may be a first.  News was released today that LDK sold a private placement of 4.4 million ordinary shares.  It noted, “Pursuant to a share repurchase program established on June 27, 2011, LDK Solar repurchased American depositary shares… in the open market or through privately negotiated transactions, for an aggregate amount of US$110 million between July 11 and August 26, 2011, which exceeded the permitted Restricted Payments under the Indenture dated February 28, 2011 relating to the Rmb 1.2 billion US$-Settled 10% Senior Notes due 2014 by US$12.8 million.”

LDK noted that the remedy was to privately issue and place 4,374,315 ordinary shares at a price of $5.8958 per share, which was the average repurchase price under the share repurchase program.  The total sale came to $25,790,086 and was to LDK New Energy Holding Limited, the controlling shareholder of the company.

Here is where this gets interesting… LDK closed at $5.00 on Friday, but the stock is now down 9% at $4.55.  That is a new year low and it is very close to the absolute lows of March 2009.

Usually these actions would seem almost like a ‘shareholder tender’ situation and the move is generally prorated for the total amounts.  This may have been seen in other companies in some form or fashion, but honestly this sure feels like a first of this sort in any company that is actively traded like this.

LDK’s share price on the day before the buyback announcement was $6.81.  It rose to $7.14 the day of the buyback announcement.  It is now $4.55.  Nice, real nice.  That being said, LDK’s entire management team gets the Mr. Dumas Accounting Award.

JON C. OGG