A targeted repurchase is a technique used to thwart a hostile
takeover
In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to t ...
in which the target
firm
A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company members share a common p ...
purchases back its own
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
from an unfriendly bidder, usually at a price well above market value.
Empirical evidence
Mikkelson and Ruback analyzed 111 blockholder
investment
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing i ...
and targeted stock repurchases in 1991 findings. According to their analysis, stock prices rose significantly at the initial stage of block investment, but fell significantly at the time of repurchase; there were cumulative significant gains for the entire period.
Examples
On August 20, 2002, KBF Pollution Management, INC., a recycling services provider, reported that it would repurchase stock from its current shareholders. KBF planned to fund its Share Repurchase Program though initiation of service for many new generators, some of which are
Fortune 500
The ''Fortune'' 500 is an annual list compiled and published by ''Fortune'' magazine that ranks 500 of the largest United States corporations by total revenue for their respective fiscal years. The list includes publicly held companies, along ...
companies, and expectations of third quarter
revenue
In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business.
Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...
s exceeding second quarter revenues by 30%. Under KBF's Share Repurchase Plan, KBF stock can be purchased by block purchase from time to time as long as it is in compliance with
SEC’s Rule 10b-18, subject to market conditions, meets legal requirements, and other factors. The repurchased shares are held in KBF's treasury where they are either inactive or applied to corporate use.
See also
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Greenmail
Greenmail or greenmailing is the action of purchasing enough shares in a firm to challenge a firm's leadership with the threat of a hostile takeover to force the target company to buy the purchased shares back at a premium in order to prevent the ...
*
Economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and intera ...
*
Mergers and acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...
*
Microeconomics
Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics fo ...
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Takeover
In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to t ...
*
Industrial organization
In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and market (economics), markets. Industrial organization adds real-world complic ...
References
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Corporate finance