2007-09-10 07:06:15 · 8 answers · asked by Anonymous in Business & Finance ➔ Investing
you can't "cancel" shares. Once a share is authorised, it remains that way. It CAN be bought back by the issuer, but that's not cancelling it.
If the issuer buys the shares back, they may do it to
-decrease the influence of voting shareholders
-show market strength (we believe in our own stock!!)
-as part of a long term plan for issuing and buying back equity to finance a project or cycle
-to create/build a pool of shares for employee programs
-etc
-etc
depends on the firm, really.
2007-09-10 07:13:18 · answer #1 · answered by auralman 2 · 1⤊ 2⤋
A company has excess capital. It can invest that capital in its business, invest it in other companies businesses (shares), or pay off some of its debt (including equity debt).
The main motivation for buying back shares is to boost the return on capital employed. Essentially, the company is saying that the best return it can achieve with the excess capital is obtained by cancelling existing shares.
In other words reducing the capital employed, will increase the return on capital employed if that capital is not required to run the business.
The question most people would want answered at an AGM is why not just declare a special dividend? This would have exactly the same effect as a share buyback. There would also not be the suspicion of market share price manipulation in order to block takeover bids or the like!
The answer, I would guess is that the decision to buy back shares can be done gradually over a period and the decision can be reversed mid buy back. However, a special dividend is a one-off occurrence and is difficult to reverse.
There are also taxation considerations which make a share buyback more efficient.
2007-09-10 10:10:41 · answer #2 · answered by James 6 · 1⤊ 0⤋
Purchase For Cancellation Shares
2017-01-19 16:00:07 · answer #3 · answered by ? 4 · 0⤊ 0⤋
If there are 1000 shares outstanding (i.e. out there in circulation) all worth $1000 each the business is notionally valued at $1M.
If the business uses spare cash to buy back 100 shares and then cancels them there are now only 900 out there. The business is still worth $1M but now each share is worth 1/900th not 1/1000th of that so the share value goes up to $1,111 each.
Companies do this to increase the share price for those that hold the shares (often the management but it is a sensible thing to do for all shareholders). Those that wish to sell at a given point - and remember that not everyone buys and sells for the same reasons - get out leaving more in the kitty for those who stay in.
This is a good way, I believe but may be wrong, of getting rid of profit that would otherwise be taxable. Outstanding shares are a form of loan to the company to buying back and cancelling shares is a form of loan repayment and therefore the cash is spent before tax.
Also if a business is known to have a management team that actively increases share price this way it can attract investors to that management style. Warren Buffett like the style so perhaps we all should.
2007-09-10 07:19:27 · answer #4 · answered by Anonymous · 1⤊ 0⤋
Ignore first answer .. Company's can and do buy back and cancel their shares all the time.
As other answer suggests the 'justification' is that the other shares are "worth more" (on paper).
In practise it usually makes very little difference and I believe it's a total waste of shareholders funds that would have been far better spent by increasing the Dividend.
So why do they do it ? Because Dividends are Income and the Directors (who usually have large quantities of shares handed to them virtually 'for free') are all on 40% Tax .. whilst a share Price increase is a Captial Gain instead (and we all have £9,000+ a year CGT allowance) ...
2007-09-10 09:57:05 · answer #5 · answered by Steve B 7 · 2⤊ 0⤋
1
2017-03-01 08:19:40 · answer #6 · answered by ? 3 · 0⤊ 0⤋
when the company has less shares , its stocks price increase because its value will be divided on less shares.so its a good way to increase share price to make investors happy
2007-09-10 09:02:31 · answer #7 · answered by coolman3455 2 · 1⤊ 0⤋
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2016-02-15 06:23:07 · answer #8 · answered by Anonymous · 0⤊ 0⤋