Originally Posted by aristoph
Hmm. This is an unusual logic. Normally if management believes its shares are undervalued and it has surplus cash it looks to buy back those shares in the market and cancel them, not build up an inefficient balance sheet. And if core shareholders also agree that a company is undervalued they would be expected to encourage management to buy back shares or return the cash to them, again not to build up a war-chest. If you are right about IB's balance sheet it doesn't make sense for a capital intensive company whose shares are cheap (and therefore whose cost of equity is expensive) to fund its entire balance sheet with equity and run no leverage.
Here is the 2005 Annual Report in English:
http://grupo.iberia.es/content/Grupo...2005%20ing.pdf
In Page 80 , you can read:
Liquidity risk
"IBERIA has a policy of maintaining a cash position approximately equal to three months' revenues. As of December 31, 2005, this position amounted to €1,939.7 million (cash plus short-term investments), and this amount has been invested in highly liquid short-term instruments,... "
As i said before the Iberia policy is very conservative , specially in the extremly uncertain airline sector . Cash position equal to 3 months of revenues is extraordinary conservative .
With the rest of the cash , probably IB is planning to "go shopping everywhere .... " as stated here by IB president Conte:
http://blogs.periodistadigital.com/a...isiciones_para
"Iberia pretende relanzar sus planes de crecimiento corporativo en el mercado latinoamericano y busca ya oportunidades de inversión para hacer uso de los más de 2.000 millones de euros de que dispone en caja, aunque condiciona la puesta en marcha de cualquier operación de adquisición a contar con un 'marco regulatorio estable' y a que quede desterrado cualquier atisbo de 'inseguridad jurídica', informó a Europa Press el presidente de la aerolínea, Fernando Conte."
I traslate for you: " Iberia want to growth in latinamerica and is searching inversion opportunities to make use of the more than 2.000 millions euros that dispose in cash, but conditions any adquisition operation to a "secure judicial framework" without any "legal insecurity" (in other words no Argentina , no Venezuela , no Bolivia .. only more serious countries like Brasil , Chile .. is LAN hearing ? )
Paradoxicaly this thread started with the "rumor" ( unfunded in my opinion) of been IB the adquired ...
I suggest you to read at least the Conte president letter in pages 4-7