Buyback

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Buyback

The covering of a short position by purchasing a long contract, usually resulting from the short sale of a commodity. See: Short covering, stock buyback. Also used in the context of bonds. The purchase of corporate bonds by the issuing company at a discount in the open market. Also used in the context of corporate finance. When a firm elects to repurchase some of the shares trading in the market.

Buyback

The act of a publicly-traded company buying its own stock, sometimes at a price well above fair market value. Buyback is not intended to stop trade on its stock. Rather, it is an attempt either to reduce the supply of shares in the market (with the hope of driving up the share price) or to prevent a real or suspected hostile takeover. If a company becomes its own majority or plurality shareholder, it either makes a hostile takeover impossible or more expensive for the acquiring company. A buyback may occur all at once or gradually over time. See also: Antitakeover measure, Self-tender offer.

buyback

A company's repurchase of a portion of its own outstanding shares. The purpose of a buyback may be to acquire a block of stock from an investor who is unfriendly to the target firm's management and is considering taking over the firm. Conversely, a buyback may be an attempt to increase earnings per share by reducing the number of outstanding shares. Regardless of the purpose of a buyback, the result is increased risk for the firm because of reduced equity in the firm's capital structure. Also called stock buyback, stock repurchase plan. See also greenmail, partial redemption, self-tender.

Case Study Corporate stock buybacks generally consist of a company purchasing its shares in the open market or offering shareholders an above-market price for a certain proportion of their holdings. Either method will result in fewer outstanding shares and, hopefully, help support the market price of the firm's stock. In some instances companies sell short put options that commit the companies to buy back shares of their stock at a specified price until a certain date. Companies issuing the puts pocket premiums paid by investors who gain the right to force the company to buy back its own shares. If the stock price remains above the exercise price specified by the puts, option holders choose not to exercise the puts because they have no interest in selling stock at a below-market price. The unexercised options expire, allowing the companies to issue additional puts and pocket additional premiums. In the event puts are exercised, companies purchase shares they intended to purchase in any case. A problem develops when the company's stock price declines dramatically, in which case the company will be forced to repurchase its own shares at a price much higher than the market price. This is exactly what happened to PC maker Dell Computer during the first half of 2001, when the company was forced to repurchase some of its shares for $47 (the exercise price of the puts) at a time the stock was trading on the Nasdaq National Market in the mid-20s. In other words, Dell was being required to pay twice the market price to repurchase its shares because the company had earlier sold put options with strike prices that on the issue date seemed reasonable but later turned out to be substantially higher than the price at which the stock traded in a depressed market. According to an SEC filing, Dell had issued put contracts on 96 million of its own shares at an average exercise price of $44 per share. Unfortunately for Dell, the purchases of its stock at inflated prices came at a time when the firm's cash flow was being squeezed by a weak PC market.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Buyback.

When a company purchases shares of its own publicly traded stock or its own bonds in the open market, it's called a buyback.

The most common reason a company buys back its stock is to make the stock more attractive to investors by increasing its earnings per share. While the actual earnings stay the same, the earnings per share increase because the number of shares has been reduced.

Companies may also buy back shares to pay for acquisitions that are financed with stock swaps or to make stocks available for employee stock option plans.

They may also want to decrease the risk of a hostile takeover by reducing the number of shares for sale, or to discourage short-term trading by driving up the share price.

Companies may buy back bonds when they are selling at discount, which is typically the result of rising interest rates. By paying less than par in the open market, the company is able to reduce the cost of redeeming the bonds when they come due.

buyback

see COUNTERTRADE.

References in periodicals archive ?

Now, the growth consequence of stock buybacks can have different effects on the share price.

Should you invest in companies that buy back stocks?

Do corporate boards and management approve stock buybacks without expecting a financial reward for this investment?

The Big Accounting Hole

Thought of another way, the $22.8 billion Apple spent on its first quarter stock buyback is enough to buy any of 275 companies in the Standard & Poor's 500-stock index.

Apple keeps setting new marks with stock buybacks

"It's just wrong for big corporations to pocket massive, permanent tax breaks and reward the wealth of top executives with more stock buybacks, while closing facilities and laying off workers." Baldwin's comments attributed the continuing problem of wealth inequality and flat wages to the recent surge in buyback activity, and she notes that corporations have announced more than $225 billion in stock buybacks just since the recent passage of tax reform laws at the end of 2017.

Will Eliminating Stock Buybacks Really Help Workers?

There is a dark side to stock buybacks that most investors don't realize.

Tax Reform Causes a Wave of Stock Buybacks. Here's How Investors Benefit

Stock buybacks are not taxable because the shareholder does not receive a distribution (Dittmar 2000).

Corporate stock buybacks-do they enhance or worsen company performance over time?

In UK, operating income is the key motivation of stock buybacks and no other factor causing important impact on the entire worth or proportion of stock buybacks.

INVESTMENT DECISIONS: STOCK BUYBACKS OR STOCK PRICES?

Interest persists, nonetheless, in the longer term impact of stock buybacks, given the anomalies and incongruences described above and the fact that the activity has become so prominent, involves enormous amounts of cash, and is a matter of public interest (Schwartz, 2011; Yamate, 2013).

An examination of corporate stock buybacks: do they really create value?

In the recent past, stock buybacks by the S&P 500 peaked at $172 billion in the third quarter of 2007 -- when the market was at its peak -- and reached a trough at $24 billion in the second quarter of 2009, just after the market had hit bottom in March of that year.

Is a Buyback Worth the Price?

17 November 2011 - US-based ZOLL Medical Corp (NASDAQ:ZOLL) said on Wednesday its board had approved a common stock buyback plan worth up to USD50m (EUR37.2m).

ZOLL Medical unveils USD50m stock buyback plan

The battle could affect employers that lay off workers then use ESOP stock buybacks to cash workers out of the ESOPs.

IRS fights court ruling over ESOP dividends

The bulk of the money has gone to overhaul its capital structure with stock buybacks and debt reduction, the rest to alter AutoNation's future direction, with capital improvements and a spate of acquisitions.

Capital structure: CFOs and other finance officers say that one size doesn't fit all, but that capital structure sends key signals to the capital markets, lenders and other important financing sources