Share buybacks, very common in the United States, are spreading to Europe. In 2022, CAC 40 companies used it to the tune of 24 billion euros. The mechanism is well known on Wall Street, where it is particularly appreciated: reducing the number of shares in circulation by buying them back makes it possible to mechanically increase the stock market price.
A method that satisfies the advice
A way for the managers of these companies to give value to their stock options, to attract investors and to make the company better valued, therefore less operable. This is the kind of consideration that is raised during board meetings. The approach is therefore purely micro-economic. However, share buybacks also have a macro-economic impact.
The Rent Clawback Theory
According to liberal theory, which should not necessarily be rejected, it is a rational decision as long as the mechanism allows profits to be optimized. To be clear, if the allocation of these billions is effective, why deprive shareholders of it? The reappropriation of the use of this money by investors is not necessarily a bad thing. The shareholder of TotalEnergies can thus recover part of his oil and gas income to place it in vehicles purely dedicated to renewable energies.
The impact on investment
Especially since the French major does not accdoes not really excel in this sector, and that its major competitors have even announced that they are going to downsize. So, it is better that they distribute the money to the shareholders, including and especially to those who wish to invest in the energy transition. In fact, investments in renewables doubled last year in Europe, but it is impossible to document the share that comes from the “fossil” rent, and a fortiori from share buybacks. This liberal theory of fair allocation is acceptable, but not proven. Thus, the rise in share buybacks since the 2010s in the United States went with a drop in the investment rate in this country.
Interventionist approach
The interventionist approach is different. The idea is to trust the State to reinvest the money from this rent, confiscated via a specific tax. The idea is then to nationalize these rents in order to redistribute them within the framework of a public policy. It remains to find the right perimeter. That France arrogates the profits of TotalEnergies does not make sense given the very minimal weight of our country in its activity and the constitution of its result. That the developing countries where the company and its competitors operate can better benefit from a sharing of the value created would be both logical and virtuous. But no one believes in the advent of global taxation. We will therefore content ourselves, for the moment, with the liberal approach.
