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 publicly listed, in contrast to the acquisi ...
in which the target
firm
A company, abbreviated as co., is a Legal personality, legal entity representing an association of legal people, whether Natural person, natural, Juridical person, juridical or a mixture of both, with a specific objective. Company members ...
purchases back its own
stock
Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...
from an unfriendly bidder, usually at a price well above market value.
Empirical evidence
Mikkelson and Ruback analyzed 111 blockholder
investment
Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...
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), Fortune'' magazine that ranks 500 of the largest United States Joint-stock company#Closely held corporations and publicly traded corporations, corporations by ...
companies, and expectations of third quarter
revenue
In accounting, revenue is the total amount of income generated by the sale of product (business), goods and services related to the primary operations of a business.
Commercial revenue may also be referred to as sales or as turnover. Some compan ...
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 a financial maneuver where investors buy enough shares in a target company to threaten a hostile takeover, prompting the target company to buy back the shares at a premium to prevent the takeover.
Corporate raids invo ...
*
Economics
Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and interac ...
*
Mergers and acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of a company, business organization, or one of their operating units is transferred to or consolidated with another entity. They may happen through direct absorpt ...
*
Microeconomics
Microeconomics is a branch of economics that studies the behavior of individuals and Theory of the firm, firms in making decisions regarding the allocation of scarcity, scarce resources and the interactions among these individuals and firms. M ...
*
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 publicly listed, in contrast to the acquisi ...
*
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 markets. Industrial organization adds real-world complications to the per ...
References
{{reflist
Corporate finance
Takeover defense