Financial policy : Question 4
What are the possible reasons behind a share buyback? What are the different methods that could be used?
There are several possible reasons behind a share buyback:
- Desire to provide a shareholder with an exit
- Desire to consolidate shareholding, as the share of shareholders who do not participate is automatically increased
- Desire to improve ratios Return on equity, growth of EPS
- Desire to change a financial structure by replacing equity with debt
- Desire to pay funds to shareholders at a more advantageous tax rate than for a dividend payout
- Desire to regulate a share price that is going through a low period
- Desire to acquire shares that will later be allocated to staff as part of stock options plans
- Desire to return money to shareholders, when the company does not know what else to do with it.
- Technically, the operation could take the form of buybacks on the market over time, or a public buyback offer for larger amounts. Moreover, to a certain degree, LBOs end up reducing capital.
For more information, see chapters 36 and 37 of the Vernimmen.
- Desire to provide a shareholder with an exit
- Desire to consolidate shareholding, as the share of shareholders who do not participate is automatically increased
- Desire to improve ratios Return on equity, growth of EPS
- Desire to change a financial structure by replacing equity with debt
- Desire to pay funds to shareholders at a more advantageous tax rate than for a dividend payout
- Desire to regulate a share price that is going through a low period
- Desire to acquire shares that will later be allocated to staff as part of stock options plans
- Desire to return money to shareholders, when the company does not know what else to do with it.
- Technically, the operation could take the form of buybacks on the market over time, or a public buyback offer for larger amounts. Moreover, to a certain degree, LBOs end up reducing capital.
For more information, see chapters 36 and 37 of the Vernimmen.