Edward looked up with a query in his eyes as his friend shook hands with the broker.
“Yes I remember we met a couple of days ago in the banking hall while I was with another customer.” Kanayo faced Edward. “I happened to be taking your call at the time.”
Edward nodded and they all sat back down. It was possible that there was no appointment with the broker after all and he‘d crashed this meeting. Maybe his secretary had been cowed by the man‘s insistence. “So what may I do for you?” He asked.
Mr. Odusote loosened his tie and brought a file out of his briefcase. “I have a new proposal. This is something I‘d mentioned earlier and is more tailored to your needs. In this one, the fund‘s major product will be your own stock, that is, Bestman Group PLC.”
There was a moment of silence broken by the movement of paper on the desks as the broker handed files out.
“You want us to invest in a share buy back?” Odili sat forward as he continued to flip through the documents he‘d just received.
Mr. Odusote bristled, “It seems you don‘t approve?”
“Well, to do what you suggest, we have to buy shares from our existing shareholders at a price higher than the current market price. It doesn‘t sound like a very good plan…”
Kanayo broke in, “I can see the advantages, of course. The outstanding shares Bestman Group has in the market are reduced and your market capitalization increases. Buy backs usually help a company post higher returns on equity.” “Exactly,” Mr. Odusote smirked. “I‘ve read through the company‘s past earnings reports and balance sheet, income and cash flow statements. You possess huge cash reserves but with no upcoming projects to invest into.” He slapped the file down on the table before him.
“You must‘ve studied the wrong updates.” Edward shifted and his eyes narrowed. He may need to keep a closer eye on this broker. “There‘ll be a huge outlay to set up our telecommunications arm soon. It‘s not a great time for another investment drive.”
There was a beat of silence which Mr. Odusote ended. “Even with this information, I still think it is. Your company should use this opportunity to change your debt to equity ratio; increase your debt.” He passed some graph images to Edward and the others. “You pay interest on the debt before tax so it costs you less than the return on equity from investors.”