Why is a company offering to buy back their stock higher than value?
 

First off, I have some investements, but I'm pretty much a novice when it comes to the ins and outs of investing. I recieved information from a company informing me they are willing to purchase for cash, shares of their stock at between $39 and $42. The stock is currently around $33, so I have a few questions.

First off, how do I know which price I will be getting, if I accept the offer?
Second, why wouldn't the company just buy shares the way everyone else does, and pay $33 a share, rather than offering shareholders a higher price? What's the part I'm missing?
Third, why wouldn't I just sell to them, then take that money and rebuy the stock on Ameritrade for the price it is listed at, which as I've said is lower than the companies offer? Thanks in advance.

Re: Why is a company offering to buy back their stock higher than valu
 

always tender. buy it back after the offer if you like the company that much.

Re: Why is a company offering to buy back their stock higher than value?
 

Yeah, if they are offering you $39 take it. Then use thier own money to buy it back at $33 again.

Re: Why is a company offering to buy back their stock higher than valu
 

Doesn't this offer mean they intend to privatize the company? So it is structured like any buyout, only the company itself is the bidder, and has raised private investment to pay for the bid.

Re: Why is a company offering to buy back their stock higher than valu
 

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Yeah, if they are offering you $39 take it. Then use thier own money to buy it back at $33 again.

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King of the stock market, indeed.

Re: Why is a company offering to buy back their stock higher than valu
 

Just to add some context to this discussion, OP is almost certainly talking about Home Depot. The buyback was originally scheduled to be ~$22B, funded by debt and proceeds from the sale of their supply division. Now it seems they're struggling to complete the sale of the supply division, the debt market has kind of seized up, and their stock price has tanked. They have already lowered their tender price once.

Re: Why is a company offering to buy back their stock higher than valu
 

Shouldn't arbitrage drive the price up to the tender offer minus transaction costs?

Re: Why is a company offering to buy back their stock higher than value?
 

Shhh, listen....

The stock market is speaking to you. It's telling you nobody is going to get $39 for this stock.

Re: Why is a company offering to buy back their stock higher than value?
 

Fly:

The reason companies buy-back stock is because they have too much cash and they don't know what to do with it. This is generally a signal that the Company is flattening out and doesn't expect huge growth in the future.

Home Depot is basically played out - they have no more room to add stores and thus growth will slow and track the general economy. The Street did not like their wholesale strategy and they are trying to unload that side of the business.

Re: Why is a company offering to buy back their stock higher than value?
 

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Fly:

The reason companies buy-back stock is because they have too much cash and they don't know what to do with it. This is generally a signal that the Company is flattening out and doesn't expect huge growth in the future.


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I hate generalizations like this. What academic textbook did you quote it from?

Re: Why is a company offering to buy back their stock higher than value?
 

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Fly:

The reason companies buy-back stock is because they have too much cash and they don't know what to do with it. This is generally a signal that the Company is flattening out and doesn't expect huge growth in the future.


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I hate generalizations like this. What academic textbook did you quote it from?

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so what is your answer to the OP's question:

"why is a company offering to buy back their stock @ higher than mkt value"?

personally i think the answer is obvious: they hate money.
[img]/images/graemlins/shocked.gif[/img]
Barron

Re: Why is a company offering to buy back their stock higher than value?
 

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Fly:

The reason companies buy-back stock is because they have too much cash and they don't know what to do with it. This is generally a signal that the Company is flattening out and doesn't expect huge growth in the future.


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I hate generalizations like this. What academic textbook did you quote it from?

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so what is your answer to the OP's question:

"why is a company offering to buy back their stock @ higher than mkt value"?

personally i think the answer is obvious: they hate money.
[img]/images/graemlins/shocked.gif[/img]
Barron

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Well the comment I responded to and OP's post really concern two different topics (at least I think).

I can name 5 different companies off the top of my head that recently bought back shares and expect to grow EPS over 20% next year.

Re: Why is a company offering to buy back their stock higher than valu
 

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Fly:

The reason companies buy-back stock is because they have too much cash and they don't know what to do with it. This is generally a signal that the Company is flattening out and doesn't expect huge growth in the future.

Home Depot is basically played out - they have no more room to add stores and thus growth will slow and track the general economy. The Street did not like their wholesale strategy and they are trying to unload that side of the business.

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the exact opposite could also be true: that they expect huge growth and want to bet every dollar they have on it

Re: Why is a company offering to buy back their stock higher than value?
 

Sounds like a dutch tender. Here's a summary.

http://www.gabelli.com/Gab_pdf/articles/DTA042103.pdf

Re: Why is a company offering to buy back their stock higher than value?
 

In responding to the original post I actually forgot to answer the original question - why buy back at a higher price?

When a company decides to buy their own stock back they generally believe it's undervalued and have no better investment options with their cash. There are 2 ways to buy back stock - open market purchases or tender offer.

If a company just wants to send a postive signal to the market or buy a small amount of shares, they buy their own stock in the open market. They usually buy very small amounts per day so as not to influence the price of the stock. This is very inefficient and the company may not achieve the desired amount of share repurchase.

If a company wants to acquire large amounts of shares in a short period - it announces a tender offer and thus solicits shares directly from investors (especially large holders) and avoids the public stock markets. In order to incent large shareholders to sell, the company sets the tender price above the current market price hoping to get the opportunity to buy large amounts of shares quickly.

No textbook answer, investment banking 101.

Re: Why is a company offering to buy back their stock higher than valu
 

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Shouldn't arbitrage drive the price up to the tender offer minus transaction costs?

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minus PV, minus risk adjustments

Re: Why is a company offering to buy back their stock higher than valu
 

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Fly:

The reason companies buy-back stock is because they have too much cash and they don't know what to do with it. This is generally a signal that the Company is flattening out and doesn't expect huge growth in the future.

Home Depot is basically played out - they have no more room to add stores and thus growth will slow and track the general economy. The Street did not like their wholesale strategy and they are trying to unload that side of the business.

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the exact opposite could also be true: that they expect huge growth and want to bet every dollar they have on it

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This is generally the case. When opening new stores = 15% return, but using cash and levering up if market is expecting 5% growth, buying shares will certainly get the biggest boost - with balance sheet effects of course.