Citigroup (NYSE: C) has sold a 4.9% stake in itself to the Abu Dhabi Investment Authority for $7.5 billion, making the fund the company's single largest shareholder. The fund will serve as a purely passive investor and will not have any role in the management or governance of the company.The move raises serious questions about the company's balance sheet, corporate governance and strategic direction. Citigroup has reiterated its commitment to maintaining its dividend repeatedly, and Wall Street seems to like that.
But think about it: Citigroup is currently trading at close to half its 52-week high, an astounding dubious accomplishment for a company of its size and status. With the stock having tanked, the company is diluting shareholders by selling off the company at its current valuation.
If Citigroup management believes in the company's strength, here's what they should do: Put out a press release announcing the temporary suspension of the dividend and explain that Citigroup has been faced with a choice of selling a stake in the company or cutting the dividend. Given the paltry valuation the stock currently trades at, management could convince shareholders it believes this would be a terrible time to sell off the company at firesale prices. For this reason, management could say they are suspending the dividend and will be buying back stock on the open market as liquidity allows.
Selling off the company at a bargain basement (relative to a few months ago, at least) price while returning cash to shareholders with a hefty tax doesn't speak well for the future of Citigroup. It's actually a strategy that only makes sense if the stock is destined to continue its downward spiral.











Reader Comments (Page 1 of 1)
11-27-2007 @ 10:22AM
JL said...
What it means is one more American Company being taken over by a foreign nation flush with American dollars. Our government has brought this country to it's knees. The dollar is weak, a recession is going to be the straw that broke the camels back. Trying to fight a war withour raising taxes, dollars going to the oil producers because congress had too many chances to come up with an alternative fuel and ignored the problem. A bunch of fat old men smoking cigars while Rome burned.
11-27-2007 @ 10:41AM
Bob said...
I hate to see they buyout of Citigroup by Abu Dhabi, if that’s what’s being proposed. I’m hopeful that Citibank’s change of leadership will lead to new practices. The NewsVisual article on Citigroup gives one hope for a turnaround, since it shows that Robert Rubin, the interim leader, has experience in both the private and public sectors. So it would be hard to replace him.
11-27-2007 @ 11:18AM
charlie mcmasters said...
Alternative energy? How about the liberals, sierria club and allthe rest that stop us from drilling in American waters and other "protected" areas ? We have to get it from somewhere so the boys in the desert have it for sale. Its not really that complicated. Then we conplain when the boys in the desert have all the money to buy out our major companies.
11-27-2007 @ 5:17PM
Mimsey said...
I think you are missing the point. Alternate energy isn't about drilling in the U.S.A. It's about solar, wind power, more efficient use of our energy. It's about people using less energy and being more conservative. It's not about drilling for new oil here. Oil is the elephant in the room and it's dying. So we need to find alternate sources of energy.
11-27-2007 @ 11:32AM
BW said...
If someone checked, we would find that it is the politicians who are keeping us from drilling more than the nature lovers, e.i., Gov. Bush when he was GOV of FL, he stopped any drilling in the Gulf. Likewise, The Terminator in CA. With a government like this, who needs the Arabs to screw us?
11-27-2007 @ 11:40AM
PRG said...
These are the last nails in the Coffin..we sold our country to foreigners, we buy Oil from the mideast, Manufactured goods from CHINA, and they use our money to bail us out. The CEO's & CFO's of these US corporations are living better than ever...this predicament they put us in doesn't seem to affect them personally, when things get tough they resign and give themselves the 250 million dollar golden parachute....Congratulations on a job well done?
11-27-2007 @ 12:15PM
WR said...
The CFO's and CEO's think it won't affect them, but it will affect their children and their children's children. Money in the family from what their grandfather's did won't make them immune to what will happen to them and this country if our politicians don't get their feeble act together and quickly.
11-27-2007 @ 12:31PM
ajgorm said...
Banking interests now only favor banks. State governments may need to take control of this situation or it will get worse. The same catalysts exist that caused this problem and won't go away without some action.
11-27-2007 @ 1:17PM
David Huston said...
It takes such little time to puncture the policy now being followed by Mr. Rubin et al at Citigroup, one has to wonder if anyone there has her/his thinking cap on. I would add that nearly 5% of the dividend also goes to the folks in Abu Dhabi, along with the fire-sold stock. Finally, how do we know what role Abu Dhabi might actually play in corporate governance, now or in the future?
11-27-2007 @ 1:29PM
Paul W said...
The americans thought they'd go in and kick some butt....who's butt is getting kicked now? Let the country burn for all I care.
11-27-2007 @ 2:02PM
bob said...
I believe that the free market may still work. If it was not for the recent investment, the market would still be dropping. The federal reserve and the IMF didn't see this blindside!!!! How dare the Arabs buy our property!!!! We weren't ready to buy back yet!!!! We could have waited till Citi was at $10 !!! Sorry boys , there is a new Kid on the block. Read your history, free markets have been gone for a long time. The fed is a monopoly. Pay your bills , get out of debt, and hope that the Arabs treat us better than the Bankers that got us here. Abu Dhabi, be careful, you are playing with a formidable foe. I will watch from the sidelines. And then pay taxes.
11-27-2007 @ 3:24PM
midnightyacht said...
surrender now. buy your wife a borka and a tourbon for yourself. thanks for screwing it up totally bernake. lower rates more so the dollar gets cheaper. mabey we will sell the whitehouse next.
11-27-2007 @ 4:44PM
blighty1945 said...
Bravo, Citigroup,well done. To capture the Abu Dhabi Investment Authority in an investment of this magnitude can only strenthen Citigroups financial position. This is a leading edge American company conducting a high level of profitable business . Once again America has proven to be an excellent , safe , attractive place in the placement of overseas investments. We are the envy of the world.
11-27-2007 @ 5:23PM
Mimsey said...
Alternative energy isn't about drilling for new oil in the U.S.A. It's about solar, wind power, turbines, better insulation, better conservation, finding ways to cut energy use, better hybrid cars, etc. etc. etc. Oil is not a long term solution and forget about coal. We need to conserve energy and we need to get smart about it.
11-27-2007 @ 6:52PM
Doris Reichert said...
Can that now create an open door to the creation of "Charitable Trusts" and the laundering of money by people adverse to us?
11-27-2007 @ 8:13PM
radioceleb99 said...
Everyday more Economist’s like Robert J. Shiller are expressing concern that the threat of a recession is coming, but there are plenty of other clues that we are facing unprecedented risks. Consider publicly traded Real Estate Investment Trusts ( REIT). Over the last few years most REIT’s performed extremely well. But the fundamentals are deteriorating and the trading values that took years to build could potentially be wiped out in as many months by the those nasty stock market vultures and fast buck artists commonly known as short sellers. Take Equity One (ticker: EQY) as an example of the perfect storm. Equity One is traded on the New York Stock Exchange. While Equity One’s exposure is nationwide it is based in Florida and so is a huge chunk of its portfolio. The double whammy facing Equity One is that unlike a diversified REIT it primarily invests in “retail” real estate. Equity One disclosed in the latest supplement to it’s quarterly report that its overall vacancy rate is already over 6%, but the shocker is the fact that the rate almost doubles (to a little over 12% vacancy) when the tenants shop is less 10,000 sq ft. The real danger for Equity One is that this group of tenants represents over 70% of Equity One’s shopping center revenue. When you consider that less than 30% of Equity One’s current shopping center tenants are Anchor’s (defined as having over 10,000 sq ft.) you really get goose bumps because at least the bigger retailers have the capital reserves to weather the storm. …And you thought only Realtors and builders had it bad.