No. of Recommendations: 0
Hi Hokie,

I understand your concern about debt to fund buybacks. If its a solid, non-cyclical business its alright. BUD has done it for over a decade and recently increased its goal for Debt to Equity ratio.

GGG's situation in 1998 was significantly different.

In July 1998, Graco repurchased 22% of its outstanding shares from a trust that had been established by one of Graco's founders. To finance the $191 million purchase -- which essentially eliminated all of its equity -- the company took on $176 million of long-term debt.

Reading between the lines a little, I'm guessing that Graco had no choice but to buy these shares from the trust of one of Graco's founders.

It happens in private business all the time. Founders or principals want to retire and everything they have is tied up in the business. The only way to "cash-out" is for the business (other shareholders) to pony up the money. Since, no reasonably captialized business can pay this kind of money from cash accounts, debt is a necessity.

I think it is safe to say, that this was a one time thing not likely to happen again. Unless, there is another founder with a large quantity of shares nearing retirement. I don't think there is.

As you eluded to, GGG bought the shares at what turned out to be very attractive pricing and that was good for all shareholders.

Do you guys seriously think GGG will hit $30?

It seems like a pipe dream, don't it. Obviously, no one knows for sure. But, just about every BMW stock has experienced some kind of dramatic sell-off that enables the smart investors to acquire shares at bargain prices. Will it happen to GGG, who knows. But if it does, I'm ready with my DD done or with only a short refresher necessary.

That's not to say GGG won't make a fabulous investment at today's prices, either. It boils down to how much risk an investor is willing to accept with his/her purchase.

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