Ensco Int'l Loses Millions Betting on Its Own Stock

• The Company: Ensco International, a provider of offshore contract drilling services.
• The Filing: FORM 10-Q filed with the SEC on October 23, 2008.
• The Finding: Returning an attractive 17.2% on shareholder equity, on average, over the last five years, the Board of Directors obviously felt that repurchasing its own shares on the open market was a prudent investment. Like many of its peers in the drilling sector who made similar fiduciary decisions, however, Ensco International overpaid for its own stock.

The Upshot: During the nine-month period ended September 30, 2008, Ensco repurchased 3.7 million shares of its common stock at a cost of $256.0 million (an average cost of $69.92 per share) under a 2007 authorization plan. In total, the company had purchased 16.5 million shares at a total cost of $937.6 million, or an average price of $56.79 per share.

Acclaimed movie director Billy Wilder once said: “Hindsight is always twenty-twenty.” At October 27, 2008, with the common stock of Ensco trading at $33.40 a share, the company had lost about $386.5 million, or almost 41 percent, of the cash invested in the repurchase programs. Pursuit of its own shares was probably not a meaningful tool in building value for Ensco stockholders.

In September 2008, the Board of Directors authorized the repurchase of an additional $500 million of Ensco common stock.

The Question: Might reinvesting the money on expanding its core offshore drilling business — opportunistic purchases of rigs on the cheap from smaller companies unable to compete in the current environment — be a better spend?