What does it mean when a company buys stock back?

[gopunk]

is this significant? in regards to stocks...

 

[amdskip]

They sell/issue stock when the price is high and buy it back when it's low usually.

 

[calpha]

Stock buyback can also be a boon to their stock price as it shows The company is solvent---and has available cash (usually).

I still don't completely understand all the intricicies of a hostile takeover in the free market----but from what I understand---a low stock price compounded with many outstanding shares, can lend a company vulnerable to hostile takeover . My uncle who's a big investor says that stock buyback is sometimes used to make the prospect of hostile takeover's less appealing (granted.....I'm speaking in the wind, b/c I still dont' understand everything behind a hostile takeover.....and my uncle's been wrong before )

 

[Yzzim]

Originally posted by: calpha
Stock buyback can also be a boon to their stock price as it shows The company is solvent---and has available cash (usually).

I still don't completely understand all the intricicies of a hostile takeover in the free market----but from what I understand---a low stock price compounded with many outstanding shares, can lend a company vulnerable to hostile takeover . My uncle who's a big investor says that stock buyback is sometimes used to make the prospect of hostile takeover's less appealing (granted.....I'm speaking in the wind, b/c I still dont' understand everything behind a hostile takeover.....and my uncle's been wrong before )

I've never understood this. How can you have a hostile takeover by buying shares? I mean, wouldn't you have to own the majority of the shares in order to "control" a company?

<------- only took a intro to economics class and it probably shows

 

[PuppyLovinGuy]

If it's a pretty stable company, you should always do what the execs do.
Most of the time they themselves create these fluctuations to make a quick buck.

 

[ElFenix]

Originally posted by: Yzzim

I've never understood this. How can you have a hostile takeover by buying shares? I mean, wouldn't you have to own the majority of the shares in order to "control" a company?

<------- only took a intro to economics class and it probably shows

no, because you'll probably have other shareholders that agree with you. ford controls mazda with about 1/3 of the shares.

and it'd be a finance class. economics doesn't really teach that



as for buybacks, dell uses it to inflate their quarterly earnings statement.

 

[ReiAyanami]

stock buyback is basically a companies way of saying their stock is so cheap they're buying it back, but the real effect is that the reduced float means higher earning per share since there are less shares out there.

hostile takeover means another corporation or person aquires a majority of the shares with the intention of ousting the current board and/or CEO. generally they also intend to "scrap the company for parts" in which they sell off individual units of the company in cases where the sum is greater than the whole

twice in the past 6 years the CEO of oak technology tried to buy out the company with his own money because the stock price was below its cash on hand, like $4 in cash per share when the stock is less than $3, hence theoretical instant profit. buying a company that has $200 million cash for only $125 million, thats a bargain. however the stockholders didnt agree and of course voted against it

 

[ReiAyanami]

funny when ebay CEO and board is saying "woo haa, super duper growth for years to come, 50% each quarter..."

while at the same time they are all dumping the stock. a good time to short except wall streets still in love with them and they might pull a stock split on us or something so still too risky

 

[Hector13]

Originally posted by: Yzzim

Originally posted by: calpha
Stock buyback can also be a boon to their stock price as it shows The company is solvent---and has available cash (usually).

I still don't completely understand all the intricicies of a hostile takeover in the free market----but from what I understand---a low stock price compounded with many outstanding shares, can lend a company vulnerable to hostile takeover . My uncle who's a big investor says that stock buyback is sometimes used to make the prospect of hostile takeover's less appealing (granted.....I'm speaking in the wind, b/c I still dont' understand everything behind a hostile takeover.....and my uncle's been wrong before )

I've never understood this. How can you have a hostile takeover by buying shares? I mean, wouldn't you have to own the majority of the shares in order to "control" a company?

<------- only took a intro to economics class and it probably shows

say a company is trading at $5 a share and some firm or person thinks they can run the company much better than current management. Lets assume that management of the firm does not want to be bought out. If the buyout firm feels that the "true" price for the firm with them in charge is something like $15 a share, they might make a tender offer directly to the shareholders of the firm for $10 a share. Say you are a shareholder of this firm (who isn't part of management), you have just been offered a profit of $5 a share, would you take it? If enough say yes (enough to give the buyout firm a majority of votes) then the buyout firm can make a hostile takeover without managements consent and boot out the management. Buyouts are usually financed with a lot of debt (hence the name LBO, leveraged buyout).

As for the various "poisoned pills" that target firms can use to avoid being bought out, one of them includes buying back shares. In the example above, if the target firm buys enough of its own shares to make the price unattractive to the LBO firm, there will be no hostile take over. Other "pills" are big "golden parachute" severance packages for the current management, making it again more costly for anyone to take over the firm and kick them out.

 

[Hector13]

Originally posted by: gopunk
is this significant? in regards to stocks...

Buybacks are usually used as a substitute to cash dividends (due to "double taxation of dividends"). Say a company made a heap of money last year and they want to redistribute some of their earnings to the shareholders (this is what a dividend is), if they issue a dividend, shareholders will have to pay their marginal tax rate on these (ie something like 40%).

On the other hand, if the firm re-purchases shares of their own stock with that money, in theory the stock price will go up and shareholders will be able to realize this gain as a capital gain as opposed to regular income (as in the dividend case). Granted, the buyback isn't always an exact substitute for the dividend, but it seems to work in general.