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

flytrap · #1 08-20-2007, 09:56 PM

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.

edtost · #2 08-20-2007, 10:17 PM

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

Shoe · #3 08-20-2007, 10:23 PM

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

Leaky Eye · #4 08-20-2007, 10:45 PM

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.

kyleb · #5 08-21-2007, 06:25 AM

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

[/ QUOTE ]

King of the stock market, indeed.

RicoTubbs · #6 08-21-2007, 09:51 AM

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.

Dale Dough · #7 08-21-2007, 10:14 AM

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

pig4bill · #8 08-22-2007, 03:24 AM

Shhh, listen....

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

midas · #9 08-22-2007, 02:04 PM

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.

PRE · #10 08-22-2007, 03:36 PM

[ QUOTE ]
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.

[/ QUOTE ]

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