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A stock buyback occurs when a company repurchase their own shares from the marketplace. Companies may decide on a stock buyback if they feel their shares are undervalued. A stock buyback can also occur when companies have excess cash on their balance sheets. Stock buybacks may be executed in the open market at prevailing prices, over an extended period of time. If the stock buyback intends to acquire a large percentage of the available shares, it may be done as a tender offer with shareholders receiving a premium over the market price. By repurchasing all outstanding shares, a stock buyback can be used to turn a public company into a private one.
A stock buyback may be viewed as bullish or bearish. Bulls view a stock buyback as putting a floor under the stock price by reducing the supply of shares, while bears see a stock buyback as a sign management can't put the cash to better use. |
