buying back their own shares

K

kd1964

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Can someone please explain to me why a Company would want to buy back their own shares. I have read that INM have done this recently. What have they to gain by doing this,would they have to pay market price, etc.

Does any one know of any simplified book re. shares, trading, etc. I bought A Random Walk down Wall St, but too complicated altoghether.

Thanks
k
 
By withdrawing shares from the public market (i.e. repurchasing them on the public exchanges) companies can support their share price or increase it. A certain price can be supported because the market will know the company has pledged to buy back shares at a certain price. Similarly, such a move can increase the shareprice by reducing the number of shares publically listed.

This can be a way for companies to return money to shareholders in a more tax efficient manner than simply paying a dividend.
 
A share buyback is one of the ways a company has to return money to shareholders other than paying a higher dividend. They bacially buy back shares which means fewer shares in the market and therefore the price should rise for the existing shareholders.
 
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Sunny said:
A share buyback is one of the ways a company has to return money to shareholders other than paying a higher dividend. They bacially buy back shares which means fewer shares in the market and therefore the price should rise for the existing shareholders.
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And presumably it means that the shareholders pay CGT at 20% rather than income tax at, probably, 41%?
 
ClubMan said:
And presumably it means that the shareholders pay CGT at 20% rather than income tax at, probably, 41%?
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And they can indefinitely postpone paying this for as long as they are willing to remain invested.
 
Also, a cynic could say that since much of executive compensation is tied to the performance of stock options, then share buy backs are a rather effective way for senior management to line their own pockets.
 
The Independent News & Media has another purpose to it as well which I don't fully understand. It effectively dilutes the voting rights of JP McManus(?) who has bought a stake in the company. I am not sure why this is, as I thought it would actually increase his percentage holding in the company.

brendan
 
Hi

I'd have said on a general basis, this can also signal that the Board have run out of more intersting and profitable things to do with the cash on hand (such as invest it in the business to generate greater future profits, fund takeovers of other companies to grow the busines etc), hence the share buy back !

.. although Im sure this is not the case at INM :)

Cheers

G>
 
Some have said that it is to prevent Denis O'Brien from building up his stake since the buyback occured just after his buying spree and the high price that was paid, but it is just speculation at the moment.
 
Garrettod said:
Hi

I'd have said on a general basis, this can also signal that the Board have run out of more intersting and profitable things to do with the cash on hand (such as invest it in the business to generate greater future profits, fund takeovers of other companies to grow the busines etc), hence the share buy back !

.. although Im sure this is not the case at INM :)

Cheers

G>
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Equally, management might be trying to prevent a private equity coup. Particularly if the company is sitting on a lot of cash.
 
It is an odd time for a buyback considering INM recently launched a bid for the remainder of their Australian arm that they don't own. I presume that is fairly expensive and would be funded from debt.
There are many reasons for a sharebuyback but here I think it's about preventing a private equity buyout. Newspaper groups are out of favour right now and are trading at low price to cashflow multiple. Private equity groups like to buy these companies, sell off some of the assets, load the balance sheet with debt(which is cheap at the moment and is seviced by the strong cashflow) and then when the cycle changes, float the remainder of the company and pocket the profit. See the Smurfit buyout and recent floation.
O'Brien, McManus etc have anticipated this and so have been recent buyers. In the event of any buyout they would sell at a significant profit. See McManus's role in the buyout of MUFC.
This sharebuyback removes some willing sellers from the market and by pushing the price up makes any buyout more expensive. It also increases the size of the O'Reilly tribe % holding of the shareholder base.
I'm not currently a shareholder in INM but the last time I looked AJ himself had about 30%. The rest of the family probably have a few % more.
In general as a small shareholder I prefer an increase in the dividend or a special dividend but it is taxed at your marginal rate.
 
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